In this article, I will explain the pros and cons of "Deed in Lieu" of foreclosure and "short sales" as viable alternatives to foreclosure for both investors and homeowners. Since a foreclosure can crush a credit score, almost anything is better than foreclosure, and both of these can result a much lighter impact on the credit score.
A deed in lieu of foreclosure and a short sale are similar but there are some big differences. I'll break those down here.
During a deed in lieu of foreclosure, the property owner deeds over the property to the bank voluntarily and in exchange the lender cancels the loan. The lender agrees to stop foreclosure proceedings or not start one if they haven't already. The lender could also agree to forgive any loss from when they sell the property.
The big part of a deed in lieu of foreclosure is if the bank is willing to forgive any deficiency balance. Read the agreement carefully to see how the deficiency balance issue is handled. If you're not clear on the agreement, seek legal counsel before signing anything.
This is the typical list of deed in lieu and short sale requirements:
· the property must already be on the market
· the property must be reasonably priced
· no liens on the property,
· the seller must have a hardship
The property owner and lender may agree to do a short sale on the home. With a short sale the lender agrees to accept less than what is owed on the mortgage balance.
Some lenders choose short sales because they do not want to own the property. They would much rather see the owner sell the property than be forced to take the house through foreclosure.
The lender picks a deed in lieu of foreclosure or a short sale depends on how the lender how it wants the distressed properties to appear on their books.
What if the lender rejects a short sale or a deed in lieu of foreclosure?
If the lender will not accept a short sale or a deed in lieu of foreclosure, foreclosure is the last option. These can be a long and painful process.
I always recommend to the investor working with the seller and the bank, to remember this one thing, your job is to be a solution provider, both to the homeowner and the banks. When you have this mindset, you are opening the door to fixing the problem. You will come across banks that just don't want to co-operate, that's gonna happen.
Then just close the folder and move on to the next one.
Tony Severino.
Tony Severino is a full time Investor and Mentor in the Chicago area. Tony and his wife and partner Lisa have been buying property for over 13 years and always look for creative methods to buy property. Tony also is a main contributor at http://CreativeInvestingTips.com. For A free Ebook on how to avoid the 10 most common mistakes Investors make, you can sign up for it at http://CreativeInvestingTips.com.
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