Asked 12 months ago - Joliet, IL
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What is the differance between the two with credit scores and purchasing another home?
Also will I be responsible for taxes if im still living in the home until it closes? I recently have my taxes in with my mortage payment.
Deed in lieu and short sale are foreclosure alternatives. They are designed to minimize the negative effect a foreclosure would have on your credit. How much a deed in lieu will affect your credit score depends on many variables (your debt to income ratio, payment history on debts, etc.) That being said, the mortgage industry standard for obtaining a new conventional mortgage after a foreclosure is 3-5 years. This means that most conventional mortgage lenders will not grant you a mortgage until 3-5 years after the foreclosure hits your credit. Presumably, a deed in lieu would affect your credit less and you would be closer to the 3 year range rather than the 5 year range. However, keep in mind that other factors may determine whether a deed in lieu is possible. If you have more than 1 mortgage on your home (you have a 2nd mortgage or Home Equity Line of Credit) then you likely will not be able to get the 1st mortgage lender to take a deed in lieu of foreclosure, because the 2nd mortgagee's lien is still on the property and the 1st lender doesn't want to buy it out.
If that is the situation, bankruptcy may be a better option. Especially if you have other debt that you are unable to repay. In terms of obtaining a conventional mortgage after bankruptcy, the timeline is similar to foreclosure: 3-5 years. But note that the 3-5 year timeline after either foreclosure or bankruptcy assumes you have worked to rebuild your credit after foreclosure or bankruptcy. This would require having some debt in your name, even a small credit card and making payments on time each month. This may be easier for you to do after bankruptcy, then a foreclosure as bankruptcy resolves all of the debts - and you would not be struggling to keep up payments on your other debts as you would (potentially) if you did a foreclosure.
Regarding property taxes, you are responsible until your name is no longer on the deed or title (i.e, until you are no longer the legal owner of the property). in most states, unpaid property taxes go against the house as a lien and must be paid by the bank or the purchasing party. However, the law may be different in your state. You should call the property tax office in your county for a more definitive answer.
Deed in lieu of foreclosure is probably better for your credit score than bankruptcy. If you are interested in a deed in lieu you need to continue to pay your property taxes. If you are planning to let the property go through foreclosure (whether or not after bankruptcy is filed) there is no need to continue paying property taxes.
There is no easy answer to this question because the system of credit scoring is secret and proprietary, like the secret sauce or blend of 11 herbs and spices.
Both bankruptcy and a deed in lieu are going to damage your credit score. The decision to go with either should not be based on what the effect will be to the credit score but by your overall financial situation.
Hope this perspective helps!
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