You may give the home of a deceased person back to a lender holding a mortgage on it through a deed-in-lieu of foreclosure. Deed-in-lieu programs usually require owner occupancy but often make an exception for the borrower's death. You'll need to follow the lender's procedures and meet eligibility requirements for approval. Once you reach an agreement with the bank and receive final confirmation, you'll transfer the home back to the bank in return for the forgiveness of the home loan balance.
Ask the lender what proof is necessary for you to deal with the house. The lender will ask for legal documentation of your right to represent the owner's estate, such as a court-issued paper appointing you executor, before working with you.
Ask the lender for the requirements of its deed-in-lieu of foreclosure program. Write down what you're told. Request the application packet for the deed.
Complete the deed-in-lieu of foreclosure papers by the deadline set by the lender. The deadline should appear on the paperwork you received or you may contact the lender to ask. Fill out all papers according to the lender's instructions and attach any necessary documentation, such as proof of the owner's death. Send the papers to the lender by the required method, such as certified mail with a return receipt request.
Clean out the deceased owner's house and remove all possessions, furnishing and other household contents. Lenders usually require the home returned in reasonable condition and empty. The lender may schedule an inspection and appraisal of the home's value prior to approval, so make sure the home is clean and make any repairs you can before the appointments.
Pay off any house bills required under the deed-in-lieu program. Lenders usually require the payment of house-related bills, such as property taxes and utility costs, before issuing the deed. Get proof of a zero balance for each account you pay in full.
Send in any additional paperwork the lender requests during the deed-in-lieu process. such as proof of property tax payment. Sign the final deed-in-lieu agreement as soon as it's available from the lender and follow the lender's final instructions to complete the transfer.
- The lender may not approve a deed-in-lieu if the home has other liens on it, such as a second mortgage, that the estate can't pay or if it was used as a rental for over a period of time, such as one year.
- Depending on your lender and where you live, the lender may go after the estate for the difference between the loan balance at the time of transfer and what the home is sold for. Ask the lender to waive their right to a deficiency judgment if you don't already qualify for it because the owner is deceased.
- Speak to the lender if the estate doesn't have enough money to cover house bills to work out an agreement.
- While a deed-in-lieu program usually requires mortgage delinquency at the time of the deed's execution, such as 31 days or more late, lenders may work with current borrowers under certain circumstances.