Deed in Lieu of Foreclosure

Home Affordable Foreclosure Alternative via a Short Sale

This is where your property is sold for less than the value of the outstanding amount left on your mortgage. In other words once the property is sold you would normally still have an amount of money left owing which you would still need to pay. But in the HAFA program this amount is written off by the lender so you never have to pay the outstanding amount. This is providing the lender agrees to the sale terms prior to putting the house on the market.

The mortgage is effectively settled in full using the funds raised in the sale, even though it is less than the outstanding amount owed.

Home Affordable Foreclosure Alternative via a Deed in Lieu of Foreclosure

This is where the ownership of the property is transferred voluntarily** to the lender in settlement of the total amount outstanding on the mortgage. There may be a requirement by the lender that the property is listed and marketed as being for sale by the homeowner before the arrangement for a deed in lieu is agreed. The property must also be free of all other encumbrances such as second mortgages or liens i.e. there should be no reason that the property cannot be marketed and sold.

** A lender cannot offer a deed in lieu of Foreclosure arrangement to a borrower, the borrower has to approach the lender and volunteer to enter into a deed in lieu of Foreclosure agreement.

Eligibility Criteria for the Home Affordable Foreclosure Alternative

• The loan owner is not eligible for HAMP (Home Affordable Modification Program)
• The loan owner is delinquent on a HAMP modification, i.e. having been offered a permanent modification to a loan, repayments have subsequently been missed
• The loan owner failed to successfully complete the HAMP trial period. The trial period is where you have to successfully meet the new payments agreed during a modification agreement before you are offered a permanent modification i.e. you have to prove you can make the payments before the modification is made permanent.
• The loan owner has to apply for a ‘short sale’ or ‘deed in lieu of foreclosure’

Additional Information

The homeowner must be assessed by participating servicers for other loan modifications or retention programs that they offer before offering HAFA.

Participating servicers (in line with their policies) must consider eligible home owners for HAFA before allowing a pending foreclosure sale to continue.

Related Articles

• Benefits of a Deed in Lieu Foreclosure
• How a Short Sale Can Prevent a Foreclosure

In a nutshell a short sale allows you to sell your house for less than the value of the mortgage on it and pay off as much of your mortgage as you can with the agreement of the mortgage lender. On some occasions the mortgage lender may write off the outstanding amount but this is not always the case and you may have to make arrangements to repay the balance at some point in the future or through reduced payments.

Find out more about Short Sales and how they work.