How to Negotiate a Deed in Lieu

by Cari Oleskewicz
A deed in lieu of foreclosure damages your credit less than foreclosure.

Homeowners under financial hardship and unable to keep making mortgage payments have several options to avoid foreclosure. If all those options have been exhausted, offering your lender the deed to your home in lieu of foreclosure might be the last resort. If you have tried selling your home, modifying your loan and attempting a short sale to no avail, talk to your lender about handing over the title of your home to avoid foreclosure. If approved, negotiate the most favorable terms you can.

Determine Eligibility

Demonstrate you have tried to sell your house. Many lenders, such as Bank of America, require you to try to sell your property at fair market value for at least three months to four months before they will consider a deed in lieu.

Identify why you are ineligible to modify or refinance your mortgage. You might have trouble refinancing if you owe more than your home is worth, and a modification will not work if you have already missed payments and have no hope of catching up.

Explain your financial hardship. Simply being upside down or underwater on your mortgage is not enough of a reason for most lenders to agree to a deed in lieu. Tell your lender in detail why you cannot make your mortgage payments, whether it's due to a divorce, death in the family, job loss or the like.

Negotiate Terms

Discuss how soon you must leave the house. Depending on the state you live in, you will have between 14 days and 30 days to leave the property. Ask your lender for enough time to vacate properly.

Find out if there are flexible exit options allowed. Fannie Mae has programs that allow borrowers to stay in the home for up to three months without paying rent or lease the home back from the lender for up to a year. Not all lenders offer these exit options.

Leave the property in good condition. Let your lender know about any wear and tear that is unavoidable, so you are not penalized for it when you move out. Remove all your belongings, and throw out trash and debris.

Ask about relocation assistance. Depending on what you negotiate with your lender, you could get up to $3,000 for help with moving expenses.

Negotiate additional payments for help with other debt related to your property. You could request up to $8,500 to help you settle other obligations, such as home equity loans or lines of credit.

Tell your lender you want a release from all liability for any outstanding amount owed on the property. This will protect you if your lender tries to collect on the difference between what you owe and what the house is worth.

About the Author

Cari Oleskewicz is a writer and blogger who has contributed to online and print publications including "The Washington Post," "Italian Cooking and Living," "Sasee Magazine" and Pork and Gin. She is based in Tampa, Florida and holds a Bachelor of Arts in communications and journalism from Marist College.

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