A deed in lieu of foreclosure aka (cash for keys) is when a home owner conveys all their interest in a property to the lender in order to avoid foreclosure proceedings. In the typical deed in lieu of foreclosure scenario, the mortgagee is in default and has not been making his or her mortgage payments.
Proceeding with the deed in lieu of foreclosure offers advantages to both the home owner and the lender.
The advantages to the borrower include the potential release from a large debt, less impact to your credit scores than a foreclosure, and also the avoidance of the public embarrassment of going through a foreclosure.
The lender would consider a deed in lieu because it saves them the time and expenses involved with a repossession. Most often when a bank agrees to do a deed in lieu of foreclosure the fair market value of the property is what the lender will be looking to receive.
In many cases the current value of your home is much less than the remaining mortgage balance.
In this scenario the bank may or may not agree to a deed in lieu. Most of the time a bank will not do a deed in lieu if there are 2nd mortgages, home equity loans, or tax liens against your property.
Another option besides a deed in lieu is what is known as a short sale. A short sale is a legal lender approved solution designed to assist those home owners who are financially strapped to get out from under their mortgage debt.
A short sale is negotiated through the mortgage holder of an owners home where by the mortgage holder agrees to take less than what home owner owes on the property. A short sale is the more common route to avoiding a foreclosure. In today's tough economic environment most lenders will now consider doing a short sale.
Remember banks are not in the business of owning Real Estate. They would much rather do a short sale than be saddled with marketing, selling, and possibly fixing up a home in order to sell.
This is one of the biggest reasons why the short sale is the more common route to avoiding foreclosure than a deed in lieu.
