Foreclosure vs Deed in Lieu: Which is Right for You?


When it comes to debt resolution, there are quite a few options, and many of them can be confusing and/or overwhelming at first. Although you have probably heard the term “deed in lieu of foreclosure” before, you may not be completely sure of what exactly it entails. Its meaning may be of particular interest to you if you are currently struggling to make ends meet, and if you have a mortgage loan.

When you begin struggling to pay your monthly bills, one of the first things you should do is take a good, hard look at your budget. Where can you make some cuts? Are there any services that you could take a step down on – at least temporarily? Once you’ve gone through your budget (including all of your income and all of your expenses for the month) with a fine-toothed comb, does it look like your financial situation will improve with small changes?

If making small changes to your monthly expenses does not pull you above water, it may be time to start looking at your bigger expenses – and your home almost always resides right at the top of that list. Making changes to your mortgage with a loan modification or mortgage refinancing may be a possible solution. These are two options that can sometimes bring your monthly mortgage payment down enough that it becomes manageable once again.

If you’ve already gone the loan modification/refinancing route only to find that you’re still fighting an uphill battle, your options become: selling your home, listing your home as a short sale, foreclosure, or applying for a deed in lieu of foreclosure.

Today, we’re going to focus on the last two: foreclosure vs deed in lieu of foreclosure.


If you’ve missed a mortgage payment, or several, your lender can foreclose on your property. Essentially, this means that they can kick you out (due to the fact that you are failing to hold up your end of the mortgage agreement) and take the house back from you. This may sound like an acceptable resolution to your problem, however, your lender can also obtain a deficiency judgement against you if they don’t make enough money re-selling the home to cover your unpaid mortgage. For example, let’s say you owe $210,000 on your home when it goes into foreclosure, but the bank is only able to sell it to someone else for $190,000. That $20,000 difference can become your responsibility. Additionally, having a foreclosure on your credit report will cause your credit score to plummet.

Deed in Lieu of Foreclosure

In plain English: ‘in lieu of’ means ‘instead of.’ Instead of your lender taking your home away from you via foreclosure, you can approach them and offer to give back the property (and the deed to same). Pros for a deed in lieu include: no embarrassing Sheriff’s Sale, and giving your lender plenty of notice that you’re having trouble paying your mortgage means that they may be more inclined to forego charging you the deficiency amount. If they do charge you, the amount you owe may be smaller, and you have the added benefit of coming to an agreement on the amount together (with the help of your attorney). The fewer surprises, the better! Although a deed in lieu will also hurt your credit score, with all of the other factors taken into consideration, it’s usually the better option.


 Image credit: Julia Manzerova

2 Responses to Foreclosure vs Deed in Lieu: Which is Right for You?

  1. Pingback: Will My Foreclosure Hurt My Spouse’s Credit After We Marry? | Veitengruber Law

  2. Pingback: Avoiding the Short Sale Deficiency: What are My Options? | Veitengruber Law

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: