Texas Foreclosure versus Deed in lieu of foreclosure?

Question

I have moved out of a property and am facing foreclosure soon. Two contracts have fallen through after we moved out and we have been unable to keep up with 2 mortgage payments.

The mortgage company called me and offered me a deed in lieu of foreclosure. How will this look on my credit as opposed to a traditional foreclosure?

Answer 1

Deed in lieu is marginally better for your credit and may be less of a financial drag as you won't get hit for all the foreclosure costs. You do need to check with your 2nd mortgage holder; you will still be on the hook, and as you are doing a deed in lieu, there will be no surplus cash to put toward satisfying the 2nd

You might also want to see what the house is worth on the open market; if they are offering a DIL, they must feel they can turn it and get out clean. YOu might be better off selling straight up, contracts falling or not.

Answer 2

There is very little difference as far as credit reporting and credit scores go. The bigger factor is that a deed in lieu of foreclosure should not result in a deficit judgment (which is the difference between what the loan balance is, plus late fees, attorney,title work, appraisal and other allowable foreclosure expenses as outlined in the mortgage note) less what they can sell it for. The law allows them sue for this difference, if they choose to, and this is typically to a foreclosure. So be sure when you sign the deed that it specifies that they will not seek remedies in this manor. I provided a website below that covers all the laws for Texas properties that are in foreclosure. Hope this helps and good luck!
Hope this helps

Answer 3

The person that said "deed in leiu" will not affect your credit is wrong. It has the same exact effect as a foreclosure. It will take 7 years to get rid of. But it is less of a headache than a judicial foreclosure, no court records, etc.

For more information about foreclosure deeds, you should buy this book below.

Answer 4

This is how I bought my house near Dayton. The owner gave the deed in lieu of foreclosure. This doesn't wipe out your payment delinquency (unless they agree to this...another negotiation tool) but looks far better than foreclosure which will haunt you for years.

Answer 5

Check with the lender to see what requirements go along with their offer. Will they hold you financially liable for the deficiency amount, if any ? Will they report the deficiency to you on a Form 1099, thus causing you to claim this as income on your next tax return ?

In either event, you can expect a hit on your credit of some severity. The DIL is only slightly less damaging than a foreclosure.

Answer 6

Your call. a deed in lieu of foreclosure will not affect your credit and all you will lose is your equity if any but you need it from both the 1st and the 2nd. A foreclosure will haunt you forever.