What is a Deed-in-lieu?
Simply, a Deed-in-Lieu (DIL) is an exchange called a "Deed in Lieu of Foreclosure". The idea behind this process is that a homeowner that cannot afford their mortgage payments would agree to transfer the house deed in full to the bank who holds the mortgage on the property. The homeowner is supposed to avoid a full foreclosure on their credit score, and the bank avoids an expensive legal process to retake the home.
The best part about a Deed in Lieu is that a homeowner has a chance to avoid a Deficiency. That is the legal responsibility for the difference between the foreclosure auction price and the amount the homeowner actually owes. If you are "upside-down" on your mortgage (owe more than the house is worth), this can be a very large amount.
For example, if the bank successfully forecloses on a homeowner that owes $200,000 on their house, and the house sells at foreclosure auction for $50,000, The Deficiency would be $150,000. The bank could possibly come after the homeowner for this Deficiency, and garnish the homeowner's check, put a lien on assets,..etc. A Deed in Lieu gives homeowners a possible way to avoid this unhappy fate, IF the bank agrees.
The Dreaded Delivery – Foreclosure Papers!
Warning - if someone leaves you, your husband / wife or adult at your house paperwork that is titled "SUMMONS", "COMPLAINT" or "CLAIM OF LIEN", and you are behind on your mortgage payments, you have been sued for foreclosure.
The warning in the documents that you have to answer to the court within 20 days is very serious and very real. From the day you (or an adult in your house) gets those documents, you only have 20 days to answer to the COURT in writing. If you don’t hire an attorney or respond to the court yourself, the bank (called the Plaintiff) can get a default against you and move to take your home.
Don't listen to the customer service representative from your bank or servicer. They may tell you not to worry, that the bank won't do anything until you get an answer on your modification or short sale. They are not communicating with the legal department that is suing you. Ask them to put it in writing with a signature, and send it to you. They won't.
At the least, you need a consultation with an experienced attorney who can advise you on your options. You may be able to change your own oil in your car, but I would not advise making the biggest investment in your life into a do-it-yourself project. Contact an attorney, and get his or her advice.
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