Deed-in-Lieu Think It Through

Hi Paul:

I have 2 properties. 1 primary residence with an option arm, that I have had FSBO and am last resort listing with a realtor friend at no fee to see if we can move it conventionally or lease option. The smaller house I have a mortg & HELOC on I am planning to move into.

These were supposed to be income projects (job) and since everything has tanked, I am resurrecting old skills to get back into traditional job market, but no income now and rapidly depleting HELOC for live on money. I have spoken with the loan co. about the option/ARM house and it seems my options are short sale or deed in lieu, no loan mod without a job.

After reading up on myfico.com, it seems that either of these have the same affect on my credit, but at least with a deed in lieu, I can walk and preserve assets I have left rather than hang on with no income for a potential buyer on short sale. They said they will not pursue a deficiency judgment with a DinL, but a 1099 will be issued for tax on deficient amount. I don’t have funds or stamina to deal with a TILA investigation as a potential solution.

Also, since all my accounts have been paid on time, never late, it seems to make sense to keep current with payments until a deed in lieu is finalized for less impact on credit. Am I missing anything in this thought process? Also, how horrible is credit impact with a 30 year history or perfect credit & what can I do to minimize the affects if I do go through with DinL?

Many thanks,

Catherine

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Hi Catherine,

My suspicion is that the lender would not accept the deed-in-lieu while the loan is current.  Additionally, a deed-in-lieu is considered a foreclosure for standard mortgage U/W.  FNMA created a separate category for completed short sale and permits a borrower to purchase a home again and obtain FNMA financing two years later.  The wait is five years for a foreclosure.

A short sale with full release of liability is far better than a deed-in-lieu.  Don’t give up on finding a buyer at a reduced price.

Read: Deed in Lieu, Rachel’s Short Sale, & VA Loan After Completing a Short Sale?

Thanks for the questions and hope this helps.

Paul