Written by attorney Benjamin D Knaupp

Dealing with Foreclosure in Oregon Part III: What is a Deed in Lieu of Foreclosure?

This article is a continuation of a previously published legal guide.

#3. What is a deed in lieu of foreclosure? If your lender won’t agree to modify your loan, and you can’t “short sell" your home, some lenders–typically small lenders like credit unions–may accept a deed in lieu of foreclosure. This could be a good option for a homeowner who needs to move out of the home and doesn’t need it as a residence. A deed in lieu of foreclosure is a legal agreement between you and your lender whereby you transfer title to the property to the lender so that the foreclosure sale is not necessary. Lenders are more willing to agree to a deed in lieu of foreclosure if their loan is the only lien against the property, and if your loan is close to the fair market value of the home. A deed in lieu of foreclosure agreement should be in writing and should be carefully reviewed by your attorney to make sure it protects you and not just your lender. They key protection you need is protection against a deficiency action. A second key protection you need is a promise by the lender to report your mortgage debt as “Paid - Settled" to the credit reporting agencies. The primary benefit of a deed in lieu of foreclosure is that if negotiated properly, a foreclosure sale is not recorded on your credit report, thus preserving your credit score. Some lenders are reporting a deed in lieu of foreclosure the same as a foreclosure sale, which would not benefit you. Next up in part 4 is legal defenses to a foreclosure action.

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