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

4748112382_152c125582_z

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.

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

NJ Foreclosure – What is a Deficiency Judgement?

12472399134_4b289cd98d_z

Millions of Americans today are swimming in an unbelievable amount of debt. Many of them have taken appropriate steps to resolve their debt in the hope of staying afloat without an albatross weighing them down.

One effective debt resolution strategy is to file for NJ bankruptcy, which either wipes clean (Chapter 7) or reorganizes (Chapter 13) all monies owed. While filing for bankruptcy does affect one’s credit score, after 7-10 years, neither a Chapter 7 or a Chapter 13 will appear on a credit report. This gives the debtor a shot at a financial “do over,” so to speak.

Many people who file for bankruptcy also allow their home to be sold via foreclosure. Once again, while not ideal for your credit score, a foreclosure allows significantly distressed homeowners a way to rebuild their finances.

In a foreclosure, the homeowner essentially gives their home to the bank or lender in exchange for not making any further payments on the mortgage. Since the bank then has full possession of the defaulted property, they can sell it at a foreclosure auction, during which the home is auctioned off to the highest bidder.

Because foreclosure auctions involve cash payments, the house usually sells for a lot less than was owed on the mortgage. In the past, it was typical for lenders to “write off” the discrepancy between the sale amount and the amount that was still owed. Most banks felt it was bad business to chase down former homeowners who were already in dire straits, so they settled for the amount they received from the foreclosure sale and that was the end of the story.

Due to the recent housing crisis, lenders have been losing more and more money (exceeding $1 trillion), and some of them have decided to take action against borrowers who had their loans foreclosed upon.

To do so, lenders can go to court and receive a judgment for the amount of the deficiency between the sale price and amount owed on the mortgage. This judgment is called a Deficiency Judgment.

More lenders are beginning to pursue Deficiency Judgments in order to collect on money they’ve lost through foreclosures, which means that many people who have just begun to get a solid foot-hold financially will essentially be slapped in the face. Making it all the way through bankruptcy court, giving your home up to foreclosure sale, only to then discover that you still owe tens of thousands of dollars can be utterly devastating.

Many years may have passed since you’ve even given a single thought to your former home when you discover that your wages will be garnished or that your checking account has been frozen until you pay off the Deficiency Judgement.

Fortunately, there is recourse. Although it may feel like your foreclosure was a thing of the past, a Deficiency Judgement is not something that can be ignored.  You need a NJ foreclosure defense attorney on your side. Veitengruber Law is here to help you defend yourself against lenders you thought were completely in your past. Call now. (732) 852-7295.

Image credit: Dustin Gaffke