Deed in Lieu of Foreclosure–Ever a Good Option?

I’ve helped a few people out lately in their decision of whether to accept a deed in lieu of foreclosure or let the process play out through a short sale or foreclosure.  In rare cases, a deed in lieu of foreclosure is an acceptable option.  In my experience, the relationship between the borrower and the lender dictates this direction.  For example, where the lender is a family member or close friend, and the borrower is fine with letting the property go to the lender, then I recommend considering this option.  Is it always the best route to go in this scenario?  No.  In fact, a deed in lieu of foreclosure has very few benefits to the borrower or lender, other than making things easier at times.  So, I don’t recommend it in most situations, except, perhaps, those where the borrower and lender have a close relationship that will overcome other factors.

One more point, even where the lender will accept a deed in lieu of foreclosure, the lender should be aware of any second deeds of trust.  Remember, a deed in lieu of foreclosure, unlike a traditional foreclosure, does not wipe out seconds.

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