Deed in lieu of foreclosure is one of the last options that you can take to avoid foreclosure. Deed in lieu of foreclosure is a type of deed that a borrower signs it to the lender to pay off a loan which is already in default and also to avoid foreclosure proceedings.
Now the defaulted borrower cannot sign a Deed in lieu of foreclosure to the lender without the lender’s consent. The lender also must accept the Deed in lieu of foreclosure.
A Deed in lieu of foreclosure offers many advantages to both the lender and the borrower. The lender can save lots of money; which he might have to spend for the foreclosure proceeding; if the borrower is ready to sign the Deed in lieu of foreclosure. The borrower can also avoid the harassment and also the deficiency judgment. As soon as the lender accepts the Deed in lieu of foreclosure, the borrower is free from all his liabilities. But the borrower may have to pay tax on the forgiven debt.
A Deed in lieu of foreclosure will have a huge negative affect on your credit report and you may not be able to get a loan in coming 5 to 7 years. The credit affects of Deed in lieu of foreclosure is similar to foreclosure. Your credit score will be dropped by 250 to 300 points and it will be shown on your credit report for 7 to 10 years. So the borrowers choose this option as their last resort to avoid foreclosure.