Question: What is a Deed in Lieu? Which is better, short sale or deed in lieu? I am in So. California.
MS
Answer: – We explain what a Deed in Lieu of Foreclosure is in our free reports section. With a deed in lieu foreclosure you are giving the home back to the bank. By giving or deeding it back to the bank, the deed is considered full payment of the mortgage loan, so there cannot be a deficiency judgment. However, there are certain restrictions like all junior lien holders must be satisfied and there must be clear title. Although you’ll be avoiding a deficiency judgment, the bank will 1099 you for the deficient amount. This deficient amount is calculated by taking the difference between the fair market value (FMV) and the outstanding debt. As far as credit issues, a deed in lieu of foreclosure shows up as “Acquisition or Abandonment of Secured Property” and is very similar to an actual foreclosure.
A short sale on the other hand has fewer restrictions but is very similar in avoiding a deficiency judgment. You can ask the bank to satisfy the loan so it’s paid in full. You will be 1099 for the deficient amount. And for your credit, a short sale shows up as a “settled debt” which is very similar, however most credit experts believe a short sale is better on your credit report than a foreclosure or deed in lieu of foreclosure. I would have to agree…but it’s not by much. Any way you go, it’s going to be bad on your credit.
My house has gone into foreclosure with the sheriff’s sale set for June 11, 2009. I JUST found out today that we had/ have the option to do a short sale. I have NEVER even heard of a short sale, until today. Do I still have time to stop the sheriff’s sale and do a short sale? Or did I miss my window of opportunity?
Wow, I hope it worked out. Most lenders require a minimum of 14 days prior to trustee sale to look over an offer and sometimes it takes them that long just to scan the short sale package into their system. So that means an offer has to be put in first. You don’t need a buyer at this point, but you do need to have submitted a short sale package to the lender. Some lenders require their own specialized forms for the submission. I would call the first and second, etc… lien holders in that order and tell them you will be submitting a short sale package tomorrow and ask for a one month extention. They give extentions a month at a time. The hard part (not for me mind you) for you is putting together a short sale package in one day. Usually I can do it in one day if I have all the homeowners income documentation already and a list of what I need from the homeowner is the first thing I send out to them because sometimes it is the hardest set of information to collect.