In its simplest definition deed in lieu foreclosure is essentially where the home owner gives the keys to the house back to the bank and walks away.

However, the reality is that it just isn’t that simple.

Unless you get all your ducks in a row and coordinate the entire process properly with the bank, the bank might well refuse your deed in lieu foreclose… and your keys. So, this isn’t a strategy that you’ll want to take on yourself or fly solo on.

With this article, let’s take a look a general overview of this process.

But before reading on… remember that with any type of financial transaction such as this there are many more details, options, and personal scenarios that just cannot be covered in the scope of an article. If you are finding yourself in this type of situation with your home, you should serious consider getting an experienced real estate agent trained in such transactions in your corner.

A deed in lieu of foreclosure does contain some advantages. That is if the bank ultimately chooses to accept it. This will avoid a public foreclosure against your house, but it won’t completely keep your credit from taking a hit. Expenses can be somewhat reduced by using this process since there won’t be any actual foreclosure costs brought on by going through an entire foreclosure process.

But returning you house via a deed in lieu foreclosure could still leave your credit score marked down and you in a difficult position for some time to come since any future credit applications will be checked against such past activity and you’ll be asked to disclosure this type of information anyway.

Deed In Lieu Foreclosure or Short Sale?

Essentially the difference between these two options comes down to who is ultimately responsible for actually selling the home. With a short sale, it will be the home owner’s responsibility to sell the house at a fair market value… even if this amount turns out to be less than is owed. In exchange for you taking on this responsibility, the lender agrees to forgive the balance of the loan.

In a deed in lieu scenario, the home owner gives the property (with the documented consent of the lender) back to lender. At which time the lender then assumes the responsibility of marketing and selling the dwelling. Generally speaking, as in a short sale the lender will write off the remaining balance.

The upside for the lending institution is that with a deed in lieu of foreclosure they will receive title to the property far in advance of having to wade through an entire foreclosure process and this represents a significant savings to the lender in not only the court costs and the attorney fees, but in house resource time and labor as well. Plus, by making the property more quickly available the lender can get on with re-selling the property and recouping some of their outstanding money.

Before you can even begin to be approved for a deed in lieu foreclosure, the homeowner will require that the house be list with an agent for a minimum of 30 days and more typically this will be 90 days. Of course, there can be no outstanding liens against the home either.

The crucial aspect to remember when it comes to going through this type of decision process is that you have an agent who is trained and experienced in this/these types of options.