Residents of southeastern Tennessee who face financial difficulty are worried about losing their homes. In some cases, unfortunately, the loss in a foreclosure proceeding is inevitable. If a lender completes a foreclosure proceeding and takes possession, the borrower's credit rating will be severely damaged. And, if the property does not provide enough cash to pay the balance on the loan, the borrower may be hit with a deficiency judgment. That is a court finding that the borrower owes whatever amount is required to pay the loan in full. If foreclosure appears to be inevitable, a borrower may consider a deed in lieu of foreclosure.
A deed in lieu of foreclosure is roughly analogous to a voluntary foreclosure. In its simplest form, a deed in lieu of foreclosure is a voluntary transfer of title to the lender, instead of a complete foreclosure proceeding. The principal advantage to both parties of a deed in lieu of foreclosure is avoiding both the delay and cost of a foreclosure proceeding. Moreover, if a bankruptcy proceeding has commenced, a deed in lieu of foreclosure, in some cases, may help the lender avoid the automatic stay.
Giving the lender a deed in lieu of foreclosure does not automatically preclude the possibility of a deficiency judgment, but in some cases, the lender can be persuaded to forego its right to seek a deficiency judgment. Whether the lender can be persuaded to give up this right will depend upon individual circumstances, such as the value of the property and the likelihood of the borrower being able to satisfy a deficiency judgment. If the lender can be persuaded to report the transfer of the property as payment in full, the borrower's credit rating will escape serious damage.
Whether a deed in lieu of foreclosure will be advantageous to a person who is seriously delinquent in mortgage payments will depend on individual circumstances. Anyone who wants to explore this remedy may wish to seek advice from an attorney who has experience in representing debtors.