For homeowners who have a mortgage through the Department of Housing and Urban Development (HUD) insured by the Federal Housing Administration (FHA), there may be additional options to obtain a deed in lieu of foreclosure to avoid the worst consequences of losing a home. The requirements for this program and how homeowners can find out if they qualify are surprisingly simple in theory.

All homeowners who have their loan insured by the FHA are able to contact HUD at the first sign of falling behind in payments. HUD provides various services to borrowers who are in danger of defaulting on a mortgage, such as free counseling and assistance with negotiating with a bank for a short sale. The deed in lieu program, although lesser-known, is another option.

The assistance that HUD provides in these cases is encouraging a mortgage company to accept a deed in lieu. But homeowners are not just able to call and have HUD automatically help them. There are three main requirements that homeowners facing foreclosure must meet in order for HUD to encourage the lender the accept the proposed deed.

First, borrowers must have become late on their mortgage due to no fault of their own. This may be from a job loss or transfer, serious illness, death in the family, or other involuntary financial hardship. Most homeowners will be able to meet this requirement quite easily in the current economic climate, but this is also designed to prevent against fraud or abuse of the system.

The second requirement homeowners must meet is that they will be unlikely to recover financially to the point of being able to make the mortgage payment again. Even with payment assistance or a forbearance agreement, some borrowers would be unable just to pay the regular monthly bill. A deed in lieu of foreclosure may definitely be appropriate in such cases.

The last requirement is the most difficult for borrowers to meet. It states that no junior liens may be present on the property or that the homeowners must pay them off within twenty (20) days of the request for the deed in lieu. For many borrowers with 80/20 loans or Home Equity Lines of Credit (HELOCs), a deed in lieu with HUD's assistance may be impossible to qualify for under this condition.

For every other borrower with a loan through the FHA who can meet these three requirements and desires government assistance with a deed in lieu of foreclosure, they can contact HUD directly. Of course, they will also want to work on other solutions to foreclosure, because HUD will only encourage the bank to accept the deed in lieu -- they will not force the lender to accept it.

A deed in lieu is usually a last resort for homeowners who can not save their homes any other way but do not just want to abandon it. Banks are not usually very open to this option, but with the encouragement of HUD and the persistence of the borrowers, they may decide it is in the best interests of everyone involved to end the foreclosure early and accept the deed in lieu of foreclosure.

Usually, homeowners do not just want to give up on their home when they begin missing payments. If there is any way to negotiate with the bank or refinance with a new lender, they often take it. But it is when they realize that there is little chance of recovering enough to save the home that borrowers will consider giving the bank a deed in lieu or just walking away.

A deed in lieu of foreclosure allows homeowners to give their property back to the bank in fulfillment of their loan obligation. The bank accepts the property back and the homeowners are off the hook for paying the mortgage any longer. As well, any foreclosure procedures that have been initiated in the court system or with a trustee are canceled.

For borrowers who have no other option to save the home and begin making monthly payments again, a deed in lieu of foreclosure is often their last resort before just abandoning the house. Of course, this option is not for every homeowner, but there are at least four reasons to consider a deed in lieu instead of just walking away.

First, if homeowners have tried to sell their property on the open market for a period of months but have just not found a buyer, it may be worth considering just giving the property back to the bank. Mortgage companies do not always want to own foreclosed homes, but if it realizes it will end up with the home anyway through a sheriff sale, it may be quicker and cheaper to accept the deed in lieu.

Second, if the owners have little or no ability to pay the mortgage, they can consider giving the property back to the bank. This is often the case when there is a permanent change in the borrowers' financial situation and a once affordable home is now too expensive. Instead of going through a lengthy foreclosure process, the bank may understand that they will not be paid back and it is better to take the property back.

Next, if homeowners have no equity in their home, their options are extremely limited for working out a solution to foreclosure. Refinancing is usually out of the question, even with hard money lenders, and negative equity will make selling the home very difficult. As well, the owners may just not even want to keep a home that is severely upside down, so offering a deed in lieu to the bank may be the best option.

Finally, many borrowers wish to preserve their credit scores as much as possible, and having a deed in lieu appear on their credit report instead of a full foreclosure will help with this. Also, they will be able to avoid some of the late payments by giving the property back to the bank quickly. While this is often a minor concern to many homeowners just trying to get out from under a house, it is another good reason to consider a deed in lieu.

While it is not always easy to convince a bank to accept a deed in lieu, it is not much more difficult than negotiating for a mortgage modification or other foreclosure help program the lender may offer. Homeowners should focus on working with a company or individual who can help explain the process and help them put together a proposal to the bank, and then be persistent in following up with the deed in lieu of foreclosure.

Homeowners who can not afford to or who simply are not interested in saving their home from foreclosure typically just walk away from the property. Once they have found a new place to live, they lock the doors of the foreclosed property, shut off the utilities, and mail the keys back to the lender. But this is not the most useful method of addressing the situation, and a deed in lieu of foreclosure may present a better option for borrowers.

Unfortunately, mortgage companies are rarely interested in homeowners who just offer the deed back to the house in exchange for no foreclosure. Lenders are not usually in the business of owning foreclosed homes, and would rather see the borrowers attempt to sell, negotiate a workout arrangement, or refinance the loan before considering a deed in lieu. Thus, homeowners should be aware of four issues to help this process succeed.

First, the lender will only accept a deed in lieu of foreclosure on a first mortgage. This means that a second mortgage company will not be able to accept this as a solution to foreclosure. Home Equity Lines of Credit are also not eligible for a deed in lieu. The only exception to this policy may be if a borrower has several mortgages through the same company, but the balances on these loans will usually have to be reduced.

Furthermore, any second mortgages, equity lines of credit, or other liens (such as property taxes, IRS liens, judgments, etc.) will need to be paid off or released before the deed in lieu will be accepted. Banks will not accept the deed to a property to stop foreclosure when that property is burdened with even more liens. This is often a sticking point for homeowners because other creditors may be unwilling to release a lien.

Third, most lenders will require that the owners attempt to sell the property for a period of months before it will consider a deed in lieu offer. This relates directly to the fact that banks would rather mortgages be paid off in full rather than have to take on a property to manage, even if it means that the owners fall behind a few more months in payments as they attempt to sell the property on the open market.

Finally, the mortgage company will not accept the borrowers' offer of a deed in lieu of foreclosure if it does not benefit the bank financially. If the bank believes that taking the property back with a deed in lieu will cost more than taking the house through foreclosure, it will foreclose. Homeowners, when preparing their offer, should clearly show how it will benefit the lender more than a foreclosure and sheriff sale.

While there are no guarantees of a bank accepting this type of plan to avoid foreclosure, by keeping these four issues in mind, homeowners may be able to increase their chances of success with a deed in lieu of foreclosure. They allow the lender and borrowers to work out a solution outside of the courts, avoid expensive foreclosure costs, and allow owners to move on with their lives and not worry about more lawsuits.

For homeowners who are not attempting to stop foreclosure but only get enough time to move out and give the house back to the bank, a deed in lieu of foreclosure may be the best option. But even then, it may also be in the best interests of the borrowers to fight the foreclosure in court to persuade the bank to negotiate.

Homeowners, as soon as the bank has begun foreclosure filings, can start filing their own motions in court just to get more time to have the lawsuit pushed back. It may be a huge mistake to allow the bank just to get a default win in court because the owners are too anxious and fail to show up for hearings or file an answer to the complaint in the first place.

For most foreclosure victims, doing the minimum amount of work to defend the lawsuit and stop foreclosure will show the bank that they are not willing to be kicked out of the house quickly and easily. Just going into court to defend the foreclosure can drag out the lawsuit potentially for months or even years.

While the lawsuit is languishing in the county court system, borrowers can then try to work with the bank to execute a deed in lieu of foreclosure to help them preserve at least a little bit of their credit. But they should not let the bank dictate all of the terms and how much time is available to get the deed in lieu done. Homeowners can use a defense against the lawsuit to force the bank to negotiate more beneficial terms.

Otherwise, the lender may just take its time reviewing the deed in lieu, and the house will be foreclosed and sold at sheriff sale. At the last minute, the borrowers may be told the mortgage company will not be accepting the deed in lieu and the house will instead be auctioned off. This is the result every homeowner dreads, but it is far too common for banks to turn down requests for help at the last minute.

There are even just a few little motions that homeowners could file in court and find explanations for online. A Motion for Extension of Time might give them an extra 30 days to file an answer to the complaint. A Motion to Dismiss might give them several extra months until the motion can be ruled upon and either granted or dismissed.

By the time these two motions have taken up valuable months, the bank will know that the owners are serious about finding a solution either in or out of the courts. The judge in the case can even order the bank to try and work with borrowers to stop foreclosure and keep the lawsuit from going to a trial (foreclosure lawsuits rarely go to trial).

That loan modification homeowners do not qualify for right now may look a lot more inviting to the bank if they are defending the lawsuit and looking at a two or three year legal process before they can take the home. That could be several years of mortgage-free living for homeowners and just as many years of legal fees and losses on the loan for the mortgage company.

Homeowners should look into their legal options as well as their non-legal options for avoiding foreclosure. Stopping the lawsuit in court or getting additional time is the best solution to begin with. Borrowers are encouraged to consult with a lawyer if they feel the need to; even spending $1,000 on an attorney would be worthwhile if they received an additional 6 months to work out another solution to foreclosure without having to pay the mortgage.

For homeowners who are unable to keep their properties out of foreclosure or work out a solution with the lender, unloading the house may be the only option left. Selling on the open market or at a short sale, giving the bank a deed in lieu of foreclosure, and simply walking away are some alternatives that may be considered in such a situation. However, the deed in lieu may be one of the least understood options in terms of how it can help mitigate some of the worst effects of foreclosure. There are at least five reasons why homeowners may want to consider this option over giving up on the property.

1. Stops the foreclosure process immediately
The most important reason to consider a deed in lieu is simply to get the foreclosure process over with as quickly and cleanly as possible. Once homeowners decide that it is no longer worth the time or effort to fight the bank and they have no other option than to lose the house, ending the foreclosure becomes a higher priority. While dragging out the process for as long as they can is one approach to take with a house, offer the lender a deed in lieu can resolve the situation much sooner and allow the homeowners to get on with lives much quicker.

2. Can help credit with fewer late mortgage payments
Possibly more damaging to homeowners' credit than the foreclosure is the long string of late mortgage payments that lead up to the legal process. Every month that they miss the payment, the bank will report the account as late; thus, ending the foreclosure with a deed in lieu will allow the borrowers to keep a number of these late payments of of their credit record. This will help them begin to recover from the effects of foreclosure much sooner than if the house went through the full process and they had the maximum number of missed mortgage payments showing on their credit report.

3. Keeps a full foreclosure off the credit report
This benefit is somewhat of a consolation prize, as it will only slightly help the homeowners after the foreclosure has ended. While a full foreclosure will not be reflected on their credit history, a deed in lieu will be shown as relating to the mortgage account. While this is only a step or two above having a complete foreclosure, any little bit will help the borrowers in repairing their credit a little bit quicker over time.

4. No chance for a deficiency judgment after foreclosure
The main concern for many homeowners facing foreclosure is being sued after the process has ended for any amount they still owe on the loan that is not satisfied by the proceeds of the sheriff sale. This can be a real fear as banks add tens of thousands of dollars in fees on properties that have declined in price and will not sell for their full value at a county auction. But with a deed in lieu, the bank accepts the property back as payment in full of the loan and has no recourse to seek a deficiency judgment after the foreclosure has ended.

5. No sheriff sale or eviction proceedings
A final concern many homeowners have when going through the full foreclosure process is simply not knowing when they will be evicted from the property, or not having enough time to move out. Although they should be given notice of any eviction proceedings, homeowners may not know they are being kicked out until the notice is posted on their door indicating the sheriff will be there to change the locks in three days. With a deed in lieu of foreclosure, the bank and homeowners will agree on a date to have the property completely emptied, so there should be no confusion or uncertainty about when the borrowers must move out.

Unfortunately, not every borrower will be able to save a home from foreclosure; this is why alternatives like the deed in lieu have been designed to provide some assistance to homeowners even if there is no option to avoid moving out. While this method does not avoid having to move out and start over, it does stop foreclosure in its tracks and allows homeowners to mitigate some of the worst consequences of losing a home. Offering the bank a deed in lieu of foreclosure, while maybe not the best option, can allow borrowers to make the most of a bad situation and have a better chance at negotiating the rough road to financial recovery.

Knowing when to give up on a house in foreclosure can be a tough decision for homeowners to make. Although many would rather keep their home and are quite willing to make affordable payments to the mortgage company, this is not always an option. Selling to avoid foreclosure may not even be an available method if property values have declined and the homeowners owe far more than their homes are worth. This leaves them with only two options, both of which will end up in their losing the home. These two methods are offering the bank a deed in lieu of foreclosure or giving up and abandoning the property.

Despite the widespread fear of calling the lender to inform them of a financial hardship or ask for help, homeowners should just call the bank and ask them what the lender can do to start the process of reviewing an offer for a deed in lieu of foreclosure. Mortgage companies are not allowed to request their clients give them a deed in lieu, because it must be offered voluntarily. In fact, many mortgage companies will not even suggest this option to homeowners in default, because they do not want to be viewed as persuading the clients to give up their home, and because they would rather have the money to pay off the mortgage or get it back on track.

Thus, it will be up to the homeowners themselves to begin the process of speaking to the bank about deed in lieu of foreclosure. Furthermore, this should be done as soon as they know they will be unable to stop foreclosure any other way. It does not matter one bit what horror stories they may read about their mortgage company from other clients in similar situations -- some deeds in lieu they will accept, others they will not. But the foreclosure victims will not know what they bank will decide about their specific property until they try this option.

The deed in lieu will look bad on the homeowners' credit after foreclosure, but not as bad as having a large number of late mortgage payments leading up to a foreclosure where the property is sold at a county auction. Avoiding a full foreclosure will do a little to help preserve the former owners' credit after losing the home and will allow them to start the process of financial recovery sooner than if they just gave up on the house. This may seem like only a minuscule benefit to using a deed in lieu, but even a few months to begin recovery and a few extra points higher of a credit score may mean all the difference if another home is to be purchased in a few years.

One of the benefits of giving a deed in lieu is not having to worry about a deficiency judgment after foreclosure. If the bank accepts the deed in lieu of foreclosure, they can not stick the homeowners with any more debt after accepting. The bank accepts the deed to the house (DEED) instead of (IN LIEU OF) taking the bank through the legal process of foreclosure (FORECLOSURE). This method is considered payment in full of the mortgage obligation. The owners will not owe anything else after giving their mortgage company the deed in lieu and there will be no danger of ending up with a judgment or the bank trying garnish wages.

The real danger in using a deed in lieu, though, is when the homeowners wait too long. The bank will not accept this if they are days away from selling the house at a sheriff sale; it will take less time and effort just to have the property auctioned off. Furthermore, if the homeowners wait and wait and the house goes into foreclosure and they do not do anything to save it and the property sells for much less than what is owed, then the bank will have an opportunity to sue them again after foreclosure for a deficiency judgment. Thankfully, the vast majority of banks hardly ever do this in practice because they know that foreclosure victims do not have the money to pay tens of thousands of dollars in judgments, and it will cost the bank more in legal fees than they will ever collect.

Homeowners who are unable to afford their home any longer, or would just like to unload their current house and have the best opportunity for quick financial recovery, would do well to consider offering their bank a deed in lieu of foreclosure. Remember, banks will not present this a solution to foreclosure victims, because it must be given voluntarily. But for those who know they will not be able to afford a payment plan or find a lender to refinance with, using a deed in lieu to stop foreclosure is several steps better than giving up on a house, and will not result in the possibility of longer-term negative credit effects, such as a deficiency judgment.

Using a deed in lieu of foreclosure is becoming a more common solution for homeowners to escape the pain of the foreclosure process. They will not be able to save the home using this method, but it can effect a mutually beneficial solution to the problem with the lender. The homeowners will have to give up title to the property, but this may be a better solution than having it forcefully sold out from under them at a county sheriff sale.

A deed in lieu of foreclosure would not directly affect the foreclosure victims' credit very much at all, which is one of the few drawbacks of using this tactic, along with the fact that the house is not saved in the first place. Their credit report will show the mortgage loan's status as being closed but reflecting the use of a "Deed in Lieu." This is only slightly better than if the credit report just said the loan had been closed due to a full "Foreclosure."

However, the deed in lieu can affect the homeowners' credit history indirectly in a number of positive ways. These should not be overlooked, as they can vastly increase their financial footing just after the foreclosure and for years afterwards.

First, by giving the deed in lieu, the homeowners will end the foreclosure process sooner than if the house is allowed to go through the entire court system until it is sold at the foreclosure auction. That means the foreclosure victims' credit reports will show fewer months of late mortgage payments. Instead of nine months of late payments and then a foreclosure, the credit history may reflect six months and then a deed in lieu. Admittedly, this is only a small consolation, but the credit score may stabilize and start to increase easier with even a few less late payments. In other words, the fewer late payments the homeowners show, the easier it will be to recover.

Also, the deed in lieu can help because, by ending the foreclosure earlier, the foreclosure victims will immediately start getting some distance from the whole process. The deed in lieu can make an end of the ordeal months sooner than watching the home be taken away by the legal mechanisms of foreclosure. The further away in time the homeowners can get from the foreclosure, the less it will affect the decisions of other creditors to loan them money in the future, including buying a new home.

For example, a foreclosure that has just ended two months ago will look very bad to a creditor, and will ensure the applicants receive the highest interest rate, if they can get approved for a loan at all. But a foreclosure that is six months ago, or two years ago, will allow the homeowners to get back on track just that much quicker, and qualify for better loans with lower costs of borrowing, if they decide to finance a purchase.

Therefore, if a deed in lieu is the only option that homeowners left to stop foreclosure, it is probably a good idea to offer it to the bank and just try to move on with their lives. Giving up a house voluntarily is never an easy decision, but it can give the foreclosure victims an escape from the entire process and give them the fresh start and opportunity they need to begin the rough road of financial recovery.

One of the last options that homeowners may consider to avoid foreclosure is simply giving their property back to the mortgage company. This is called giving the bank a deed in lieu of foreclosure, and is usually used when the foreclosure victims have been unable to find any alternate solution to save the home or sell it. Especially if the bank does not offer a realistic repayment plan, or the homeowners are unable to refinance out of foreclosure, and do not want to consider bankruptcy to stop foreclosure, a deed in lieu can help them get out from under the house and start moving on with their lives. Although this method of preventing foreclosure will have negative credit consequences, it also provides opportunities that the homeowners would not have, if they simply let the house go into foreclosure.

There is no doubt that the deed in lieu of foreclosure will be a negative mark on the homeowners' credit histories. In fact, it is just slightly better than having a full foreclosure show on their report, preventing them from obtaining a new home loan for some years, and drastically reducing their overall credit scores. However, the reason to go with a deed in lieu of foreclosure over a full foreclosure is that their credit may look much better, relatively speaking.

By accepting a deed in lieu of foreclosure, the bank agrees to take the property back instead of pursuing the foreclosure lawsuit and attempting to sell it at a county foreclosure auction. Once the bank accepts the deed, the foreclosure process is immediately ended, the foreclosure victims are no longer the owner of the house, and they can not be sued for a house they no longer own or have a mortgage on. There is also no way that the bank can go after any of their other assets, or try to sue for a deficiency judgment -- the deed is accepted as payment in full of the loan, and there is no loss on the property, so the lender can not sue for the difference of what it received and what it was owed. The deed counts as payment in full. (Of course, this is also one reason banks do not always accept the deed in lieu.)

Therefore, the deed in lieu can be used to stop foreclosure a lot quicker than casually waiting for the entire foreclosure process to wind its way through the county court system. This termination of the process can help the homeowners' credit quite a bit, depending on the circumstances. Especially because they can avoid some of the additional late mortgage payments that would have come if they had let the property go all the way through foreclosure, this can ultimately keep some negative information off of the credit report. In most foreclosure cases, the lender reports all of their payments late until the sheriff sale and then the foreclosure status is the final negative mark against their credit. But by giving the bank a deed in lieu, the foreclosure victims can stop this process months earlier and avoid a number of late payments.

Obviously, the deed in lieu will be reflected on their credit instead of the foreclosure, but the important thing is that they will show fewer late mortgage payments. The fewer payments missed before a solution was worked out, the more reliable and conscientious the homeowners will seem to other future creditors. Also, the quicker they can end the foreclosure process, the quicker they can begin recovering financially and credit-wise. If they can get a few months ahead of when the foreclosure would normally have ended by giving the deed in lieu, they will be that much better off, despite the fact of having the negative credit information.

Thus, the deed in lieu is not that much better than a foreclosure in absolute terms, but it can help homeowners by avoiding the maximum number of late mortgage payments and by giving them a chance to start the recovery process after foreclosure quite a bit sooner. Unless they have some other solution they are working on, if they have decided there is no way or reason to keep the home, a deed in lieu can be the most efficient way to stop foreclosure. If this is the best option, homeowners should try doing it as soon as possible to get the bank to accept right away, and have the foreclosure over with as soon as possible. While a deed in lieu is not the best solution in all cases, and will not result in homeowners saving their homes, and puts a negative mark on their credit report, it can be used by foreclosure victims to avoid the worst of the foreclosure, unload the house in a mutually-agreed way with the lender, and allow the homeowners to begin recovering financially sooner rather than later.

Some homeowners, when the know they will no longer be able to afford their home, decide that they will simply move out of the house. They may do this for a number of reasons: the bank may be calling them incessantly and they want an escape, they may believe that moving out will allow the bank to take the home back quicker, or they may just have found another place to live. Abandoning a home to foreclosure, though, is often the least desirable option when attempting to stop foreclosure. Surrendering the house through a deed in lieu of foreclosure will have much the same end results in terms of allowing the homeowners to move out and move on with their lives, but they will also be able to preserve a small amount of their credit, as well.

If the foreclosures victims just move out and abandon the home, this action will not surrender the title to the home. It is simply abandoning the property. The foreclosure process will continue since the foreclosure victims are still the legal owners of the house and the bank will have to take it back through the court system. Just moving out does not transfer ownership, as they could move out to rent the house to a tenant, go on vacation for a month, or any other reason. The bank and the court have no ability to take the house back just because the homeowners are no longer living there, as they have no real way of knowing why the homeowners moved out, or if they will return. Unless the foreclosure victims let the bank know that they have abandoned the house, the bank will simply believe that their phone calls and letters are continuing to be ignored by the foreclosure victims.

The mortgage company can, however, change the locks and prevent the house from vandalism if the foreclosure victims have moved out. This is not considered taking the property back but protecting the lender's interest in having a property that is not destroyed by thieves and vandals. In addition, the bank will not receive title to the home by having the locks changed, because there is still no transfer of ownership rights. The homeowners are simply assumed to have abandoned the house and the bank has the right to protect the collateral for the loan. In most cases, if the homeowners return to the property after the locks are changed, they can contact the court system or the county sheriffs department to regain entry into the house -- they are still the legal owners so they have the right to possess the property even throughout the foreclosure process.

Moving out of the house and going through the foreclosure process will have the same negative effects on the homeowners' credit as if they stayed in the house and went through foreclosure. A foreclosure will show on their credit report and will drag down their credit scores. Simply moving out, because it does not materially affect the foreclosure process itself as it works through the courts, will do nothing to help the homeowners either stop foreclosure on the home or recover their credit. In fact, homeowners may as well stay in the property and begin saving up an emergency fund or paying down other debts to utilize their time in the house in the most effective way. Even if they can not afford the mortgage, it may be better to make good on other debts, such as car loans or credit cards, rather than take on a new housing payment or renting an apartment right away.

Surrendering a house is usually done with a deed in lieu of foreclosure, and is done before the house is sold at sheriff sale. Homeowners can call their lender to offer the deed in lieu of foreclosure, and the bank will evaluate whether to accept or not. A deed in lieu will be slightly better on the homeowners' credit, because they did at least something to avoid the entire foreclosure process, even if it was merely giving the property back and admitting that they could not afford the mortgage any longer. The fact that this option will allow the lender to avoid a costly legal battle will give the foreclosure victims a slightly less negative mark on their credit, though, as it shows they worked with the bank to transfer the property and give the collateral back instead of face foreclosure.

Abandoning a home does not affect the foreclosure process or its negative consequences. A deed in lieu can effectively surrender a house to the bank. This makes offering the bank a deed in lieu of foreclosure a much wiser decision for the long-term financial health of the foreclosure victims. Rather than leaving the house before the foreclosure process is over, homeowners can stay until the transfer is completed, using the time to get out of debt, save up an emergency fund, or otherwise improve their financial health. Once the deed is transferred to the bank, the homeowners will then be free to move out of the house, having found a solution to stop foreclosure and avoid the more devastating effects of the foreclosure process.

Some homeowners, when they have run out of viable options to save their homes from foreclosure, are willing to offer the bank the deed to the house in order to stop the foreclosure process. This is called giving the bank a deed in lieu of foreclosure, and is usually one of the last efforts made by foreclosure victims to do anything possible to find a solution. A deed in lieu will even help preserve their credit slightly, even though it is a clear admission of the homeowners' inability to maintain the responsibility to pay the mortgage. The deed in lieu of foreclosure is slightly better than losing the home due to how it will look on the foreclosure victims' credit reports.

With either the deed in lieu or a full foreclosure, though, potential lenders will be able to see that the homeowners took out a loan for several tens of thousands or hundreds of thousands of dollars and then failed to meet the obligation to pay the money back on time. Obviously, this is not a positive situation for foreclosure victims, and it is exactly what creditors will not want to see when they are considering a new applicant's application for a loan. Either option shows them that these former homeowners may not be able to pay back the new loan.

However, there is one distinct advantage to using a deed in lieu. This is the fact that creditors will look at the credit report and recognize that the homeowners admitted their inability to pay the mortgage. They voluntarily gave the bank the collateral for the loan, which was the house, and made every effort to end the foreclosure process, even though it meant losing the property in the end. This is only a small advantage, of course, but it can help the foreclosure victims tremendously in beginning the process of repairing their credit after foreclosure.

Having gone through a full foreclosure, as opposed to giving the bank a deed in lieu of foreclosure, means that the mortgage company was forced to take the property through the entire legal process in order to gain the collateral back. Many creditors see this as a glaring disadvantage to extending credit to any applicant, as they know that foreclosure proceedings are lengthy and expensive. They do not want to take on the extra expenses of suing the debtors, trying to retrieve the collateral, and then repairing any damage that the foreclosure victims may have caused to the homes, as an act of spite towards the lender.

Therefore, for homeowners in foreclosure with few other options to save the house, it may be a wise move to offer the mortgage company a deed in lieu of foreclosure. The bank will have to accept the offer, but if the foreclosure victims have made every attempt to stop foreclosure before offering the deed in lieu, many mortgage companies will accept it just to be able to end the foreclosure proceedings. It is also important for the homeowners to begin working on their credit after the ordeal is over, and they may be able to qualify for a new mortgage loan at a competitive interest rate within a few years of giving the deed in lieu.

A small percentage of homeowners, when facing foreclosure, simply can not afford to keep their property. None of the common solutions are applicable to their situation. They may not have enough equity to refinance, or will be unable to afford the higher monthly payments that come along with foreclosure loans. Depending on the real estate market, there not be an opportunity to sell the house, and the lender may not accept a short sale. At this point the homeowners may just want to give up on the property and give it back to the lender. Many foreclosure victims in this situation are interested in this option to stop foreclosure, but they are unsure what exactly it is called, or if it even exists. The homeowner can voluntarily give the property back to the lender, though, by using a deed instrument called a deed in lieu of foreclosure.

The deed in lieu is an agreement between the borrower and the bank for the bank to accept the property as payment in full for the mortgage. Once the deed is drawn up and executed, ownership of the property will transfer to the lender, and the homeowners must move out of the property. Even though this is usually considered the last option for homeowners who want to stop foreclosure, it can be more beneficial to everyone involved than going through the entire foreclosure process. As Wikipedia states, "The principal advantage to the borrower is that it immediately releases him from most or all of the personal indebtedness associated with the defaulted loan. The borrower also avoids the public notoriety of a foreclosure proceeding and may receive more generous terms than he would in a formal foreclosure. Advantages to a lender include a reduction in the time and cost of a repossession, and additional advantages if the borrower subsequently files for bankruptcy." Thus, both the lender and the homeowner can reach an agreement on how best to avoid foreclosure, if there is no possibility of keeping the home or paying the loan.

Lenders, however, do not usually just accept a deed in lieu of foreclosure from any homeowner at any time. As is the case with almost everything else with banks, there is an application process. In our experience, the bank will usually request that the homeowners attempt to sell the home for a period of time, and if they are unable to locate a buyer, they can submit an offer for the deed in lieu. Income and financial requirements may also have to be met by the borrowers, in order to prove that they are unable to afford the mortgage payments any longer.

There is also no guarantee that the bank will even accept the deed in lieu of foreclosure. This is especially true if the property is already in the later stages of the foreclosure process. It may be more expedient and cost-effective for the lender just to carry out the rest of the process of taking the home back from their clients.

Furthermore, executing a deed in lieu of foreclosure does not save the borrowers' credit from dropping. A deed in lieu is considered only slightly better than an actual foreclosure, and the lender will not be very willing to erase the record of several late payments that caused the home to go into foreclosure in the first place. Homeowners who are concerned with saving their credit score should make every attempt to sell the property and have the loan status showing "Paid in Full," rather than "Foreclosure" or "Deed In Lieu of Foreclosure."

In conclusion, the deed in lieu of foreclosure, while a valid option to stop foreclosure, is not the preferred method for most homeowners. It would make much more sense for homeowners who want to keep their homes to examine other options to save their homes, such as foreclosure refinancing, and for homeowners who can not keep the home to attempt to sell the property or work out a short sale.