When faced with foreclosure on a home, any idea may sound like a good idea. Is a deed in lieu of foreclosure one worth pursuing or will it only cause more problems for homeowners? Honestly, getting a bank to agree to a deed in lieu of foreclosure may prove difficult and the homeowner may still end up losing the home. 

According to Bankrate, when a homeowner chooses a deed in lieu of foreclosure, instead of forcing the bank to seize the property, he or she signs the property over, willingly. When this happens, the homeowner may have no further obligations to pay on the mortgage. 

The potential impact of a deed in lieu of foreclosure

The main reason most homeowners want to avoid foreclosure is public embarrassment. There is simply no private way to go about the foreclosure process. Signing over the property to get rid of the mortgage may also work well in situations where the homeowner has an underwater mortgage. 

When homeowners choose foreclosure on underwater mortgages, the lender may later sue for the remaining balance after the sale. This may not happen with deeding. Finally, while foreclosures affect future mortgage eligibility for up to 10 years, signing over the property may only affect eligibility for three to five years. 

Why lenders remain reluctant to accept the offer

Signing over the property requires mutual agreement, which homeowners may have a difficult time securing from the lender. Here are some reasons HGTV believes lenders may say no to what looks like a favorable deal: 

  • The lender may wish to avoid future potential lawsuits regarding the process of taking the home back. 
  • The lender may not want to accept the full loss of an underwater mortgage. 
  • The lender may need to pay back home equity lines of credit and other financial claims against the home. 

Because of the risks involved for the lender, it may put off accepting a deed offer until foreclosure becomes inevitable. It may also require proof of true financial struggle and may want to see proof that the owner tried to sell the home for a few months.