Deed in Lieu of Foreclosure is Viable Option for Distressed Homes in Chicago
With the economy currently seeing little recovery, distressed home sales
continue to rise in the Chicago area. Sales of distressed homes and condos
- which are generally homes in which the owner is behind on mortgage payments
and facing possible
foreclosure or short sale - increased 16 percent in the fourth quarter of 2011 compared
to the previous quarter, and rose 25 percent from the same quarter the
year before, according to RealtyTrac.
Further illustrating that the mortgage crisis is far from over, during
the final three months of 2011 a total of 7,347 home sales in the Chicago
area were the result of short sales or foreclosures - accounting for 28
percent of all homes sold.
Unfortunately, this trend will likely continue in 2012. Brandon Moore,
ReatlyTrac CEO, recently said in a statement, "We expect to see foreclosure-related
sales increase in 2012, particularly (short sales), as lenders start to
more aggressively dispose of distressed assets held up by the mortgage
servicing gridlock over the past 18 months."
Because this trend is unlikely to alter course anytime soon, it is important
that those Chicagoans behind on their mortgage payments know their options
to avoid the detrimental impact a foreclosure can have on their finances
and credit report.
Deed in Lieu of Foreclosure
One option to avoid a formal foreclosure in
Chicago is a deed in lieu of foreclosure. Basically, a deed in lieu of foreclosure is when the homeowner and lender
agree that the lender will accept the deed for the home "in lieu"
of the lender foreclosing on the home.
This choice is generally a good option for homeowners. It provides relief
from unmanageable mortgage payments, does less damage to credit scores
than a normal foreclosure, and it also protects them from deficiency judgments
by the lender. A deficiency judgment arises when the lender sells the
home at a foreclosure sale for less than the value of the mortgage. Although
this option will not save the home, it may free up money to pay off other
debts incurred by the homeowner.
For example, imagine a couple named Blake and Crystal who purchased a $500,000
home in Winnetka in 2007. They take out a $400,000 loan which has a monthly
mortgage payment of $4,000. In late 2011, both Blake and Crystal lose
their jobs and fall behind on mortgage, which currently has a principal
balance of $350,000. If Blake and Crystal can get their lender to agree
to a deed in lieu of foreclosure, they will no longer be liable for the
$350,000. Also, Blake and Crystal will not have to worry about the lender
coming after them for more money - even if the lender is only able to
sell the home for $300,000. And even though Blake and Crystal were unable
to save their home, they have now freed up the money they would have spent
on their mortgage to pay off other debts and to save for a down-payment
on a new home.
Unfortunately, getting the lender to agree to a deed in lieu of foreclosure
is not always easy, especially if there is a second mortgage on the home.
If there is a second mortgage, the lender will have to negotiate with
these other lenders, making it less likely that the original lender will
agree to the deed in lieu of foreclosure in the first place. This is why
it is important to speak with an experienced attorney to negotiate on
your behalf. Not only can the attorney negotiate for you, but they can
advise as to whether a deed in lieu of foreclosure is even your best option
to begin with. For example, it may be better for the homeowner to pursue
a Chapter 13 bankruptcy, especially if the homeowner wants to keep their home.