Short Sale vs. Deed-in-Lieu: What’s Your Best Choice?

Homeowners facing foreclosure often have the option of selecting a short sale or a deed-in-lieu of foreclosure as a possible solution to their financial difficulties. But are they? Which is the best choice? Like most alternatives, both have their upsides and their downsides. Understanding these options is the only way to make a truly informed decision.

In a short sale, your lender takes the loss

When you decide to use a short sale to prevent foreclosure, you should understand that the sale must have the lender’s approval and that lenders don’t always agree. What the lender is doing when he accepts, is permitting you to sell your home for less than you owe him and taking the loss himself. If he does go along with the short sale, it will relieve you of the burden (arrearages) as well as the cost, emotional strain and embarrassment of a messy foreclosure procedure. On the upside, a short sale is far less destructive to your credit rating than a foreclosure, as it is supposed to be listed as a “settled debt” on your credit report. However, it is still harmful to your credit score and can reduce it by 200 points or more.

On the downside, the lender could always go after you to collect the difference between the short sale price and what you owed him by getting a deficiency judgment against you. However, more often than not, this doesn’t happen simply because he knows that there is no money to recover and that he will have to pay all the costs of the legal action.

deed-in-lieu may be your fastest way out

A deed-in-lieu of foreclosure is when you give your home back to your lender, take your losses and thereby prevent the foreclosure. Lenders will frequently accept this because it is a less expensive and time consuming process for him than a full foreclosure action. The upside is that a deed-in- lieu is a faster solution than a short sale and that it is more likely to be acceptable to the lender. The ramifications to your credit score are about the same as the short sale.

On the downside, if the lender eventually sells the home for a price that doesn’t pay off the original mortgage amount, he can get a deficiency judgment and try to collect it from you. Once again, however, he knows that you can’t get blood out of a stone and probably won’t proceed if there doesn’t appear to be any money to recover.

Select either Short Sale or Deed-in-Lieu as early on as possible

The sooner you act on either a short sale or a deed-in-lieu the better. Once the foreclosure process is activated, you will not be in a strong position to negotiate with your lender because payment arrearages, interest and penalties have piled up. He can hold you financially responsible for his losses and seek a deficiency judgment that will appear on your credit report even if you don’t have the money to pay it. In either case, however, avoiding foreclosure is always a better choice in terms of the effect on your credit.

I successfully short sold my home. It was an easy process, but it beat having my home go to auction at foreclosure! Check out my guide to short selling a home before you do anything else!

You Need An Experienced Short Sale Agent!

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  • Teri

    Thank you for all of this information. It has helped me sort out all of the “advice” I’ve received from well intentioned family and friends and many of those in the real estate profession. I am an Escrow Officer and am familiar with short sales, foreclosures, etc. but what no one could confirm for me…and you did, was the difference in the impact of short sale vs. deed in lieu of and the fact that HR 3648 also applies to debt forgiven as a result of short sale as well as foreclosure…..thanks!

  • Dean

    Here is my situation:
    I lived in a small, one company town that didn’t have a bright future. So, I moved cross country. The house has been for sale since July of 07. No offers and we’ve reduced the price to about what we owe on it, ~$450,000. Given the future of the company in this one company town, I don’t see this house selling for a year or so. I can’t wait that long.
    I’m buying a new house on 3/29 while my credit is good. My credit score is 811 right now.
    From talking to others, a deed-in-lieu seems to make sense. Just give the house back and move on. How long does this process take? Can it be completed in a few weeks? When should I contact the lender? I don’t want to do anything that would effect my credit before 3/29.


  • david h

    Dear Debt Kid:

    My wife and I have to move this summer. We bought our house, with 100% financing, for $265,000. It is now on the market for $185,000. We have an offer and are now trying to get a short sale approved, with the help of the real estate agent. This agent told us that our lender would not ask for bank statements or tax returns. The lender is now asking for both. The statement and tax returns show that we in fact can afford to pay our mortgage, which we have not paid for a couple of months. We were told that this was a requirement for them to take our short sale request seriously. Since they will likely not approve a short sale, is our best option a deed-in-lieu? Will they approve it and what will happen? We really can’t handle being stuck with $80,000 in debt. We would be grateful for any advice. Thank you for this site!

  • Jennifer

    Short sales require a Hardship letter. All of the short sales I have encountered in Real Estate sales were for people who truly need the help. Some have lost their job. They are going through a divorce. Even a military transfer. Some have taken a cut in pay to keep their job. The short sale program is not for people to abuse it. After reading the above letters – they seem like people who would abuse the welfare system and live off of it rather than use it temporarily to better themselves so they will no longer need the assistance. The banks are taking the hit. With people out there like this there will be few banks due to several closing their doors. (This is all ready happening) or the costs of banking will eventually increase and we all pay for it. I suggest you keep your homes – because you financially can. Your lender did not put you in a home where you could not afford to go to dinner on Friday night. Your home is an investment. The stock market goes up and down and now the the housing market has gone down. There were no guarantees. Take your loss or don’t sell. Rent your home out until the market gets better. You can’t get the same money you lost in the market back. You can’t go gambling, lose and expect not to pay. Remember – take advantage of a situation like this and Karma may come back to you and place you in the same situation your pretending to be in. This time with no help available. Do the Right Thing!

  • david h

    Jennifer: Just b/c we can afford to pay mortgage does not mean we can afford to pay off $80,000 in debt and pay rent for a new home at the same time. This might not be “hardship” to you, but it is to us. We can’t stay (have to move, remember) and we can’t rent it out in this market. We didn’t “gamble”, we bought a home. Stop whining.

  • MrSandman

    I am glad to have google this same title…… The information in here was valuable.. I knew some things but not all . And still have more questions than I care to ask here.
    I will definitely continue reading the posts

  • Andy


    Just wanted to say you’re not alone – I purchased a property in ’05 that’s way upside-down now, then met my wife, got married and now live in her home. I don’t need my original property now (renting it can’t cover the extremely high mortgage). Although I make a good income, I cannot afford this mortgage and the one on my wife’s home (wife has no income). This is certainly hardship…and I’m now forging ahead with trying to do a short sale. I’m wondering if my lender will even take me seriously given my situation, even with the hardship letter. Do I just stop making payments? It’s all pretty scary so anyone feel free to weigh in…Thanks!

  • Joan

    I’m with you also. We bought in 05 in Fl and I have recently taken a job up north. We need to sell but will end up short about 40K plus fee’s. I don’t want to ruin my credit score but don’t know which way to go. We stuggle to make the 2K mortgage and then insurance and taxes on top of that. Any suggestions would be helpful.

    Good website. Well done!

  • Chance

    Jennifer sounds like a banker. Read Woodrow Wilsons relent about the banking industry after he organized the Federal Reserve for a bit about the banking industry. Anyhow, as for her comment “Your lender did not put you in a home where you could not afford to go to dinner on Friday night,” this is absolute crap. M&I bank gave me a $900,000.00 loan, yes that’s right, almost a milklion dollars, on property that has lost all of it’s value and now they want tp punish ME! If you have never been in financial crisis like this one, you will never quite understand just how much of our lives banks control. They do risky and stupid things because afterall, they are insured by our tax dollars. They deserve to close their doors if they have practised bad lending habits. Banks can go to hell for all I care.

  • Rebecca

    I did a short sale on a condo I purchased as an investment in ’05. This was a condo conversion all of us idiots stood in line from the night before to buy one. A couple a year later I decided to put mine up for sale after loosing my tenant and was in for a rude awakening. My lender at the time, Homebanc did not want me to do a short sale so I had to stop making payments so they would take me seriously. I got an all cash offer from a buyer for 110K in Sept 07 and Homebanc would not accept the offer. I couldn’t belive it even with all of the other condos on the market . Finally after my realtor convinced them to do a secondo appraisal they made the buyer come up 3K and accepted the short sale offer. As far as my credit goes I had perfect credit before the short sale my mid score was a 750. After the deal was closed about a month and a half later a different lender contacted me about payments on the property, I had to prove to them at least a half dozen of times that I no longer owned the property and they were sold the mortgage during an acuistion period. UNBELIVEABLE I thought I finally got rid of this headache and here I am defending myself to a completely different lender that I no longer own the property. THey finally stopped harassing me and a few weeks later a different lender started…YES again they sold the loan and I did not even own the property. Well this happened again for the third time and finally at the end of January this year 2008 they sent me a letter of satisfaction. So, back to my credit I am not sure if it slipped through the cracks becasue of all the after market selling of my loans or if I just plain got lucky but I have 3 lates total from Homebanc and my score is back up in the 700′s. This was a very stressful time, however I recomend doing a short sale whenever possible. It can save your credit in the long run. Also, in my opinion if the lender tells you to wait to drop the price..DON’T LISTEN especially in this market…drop it now because you are going to take a loss either way. It’s better to place the home on the market with a competitive price then to waste your time marketing it at a price that will give you no action on the property. GOOD LUCK…remember you are in the same boat as a lot of people and this will all eventually pass. I truly believe when the market does recover later down the road there will be a HUGE wave of people who all have either mort lates, shrot sales, deed in lieus which negatively affect their credit…and because of this there will come a time when lenders will again have a loan product out there for us who fall in this boat so we again will be able to buy. Afterall lenders created the market we are now suffereing from and they will have to forgive our debt because of their inability to see what type of bubble they created.

  • Jane

    I am in the same boat. My husband just took a job out of state and we need to move 1200 miles. Our house has been up for sale for almost 2 months with no offers. We need to move within 1-2 weeks and it has now come to the point where I need the money to move instead of paying for the house. We are ready to just walk away from it all. I am not going to keep paying the mortgage when I am not living here. At this point, I don’t care if my credit is ruined or not. I have been good my whole life paying my bills on time and just found out my neighbor has filed bankruptcy twice and has already had a foreclosure. So, people with bad credit can get new mortgages because they got the one they are in now and their payment is less and their house is bigger. I think that is a slap in the face to me who has had a score of 791 for the past 5 years. So I just do not care anymore. Life goes on and I can rebuild my credit.
    I will contact the bank about a deed in lieu. We just need to get out asap. I don’t want to have too many lates on my credit, which can be disputed. I really don’t want a foreclosure out there though which can not be taken off your credit.

  • Giggles

    I’m new to all of this. I thought I was doing the right thing by buying a house, I just picked the wrong year to do so….2005 such an awful year for home buyers!
    What’s even worse is that I did it the RIGHT way. I didn’t buy some fancy shmancy house…I even got my loan through a Government program that helps Low-Income individuals with homeownership. Now I’m stuck and the government program is telling me to either file bankruptcy or do a short sale but be prepared to have my tax returns intercepted for life! WHAT???
    It comes down to the fact that I need to sell my home. The government program that I’m in…I no longer qualify for…so their rules are that I refinance…um hellooo…I can’t refinance because now I owe more than what the house is worth…I’m stuck! What do I do? I’m getting married in August and then we’re moving to Florida. The kicker in all of this is that I am CURRENT…I haven’t missed any payments YET but when we move and I no longer have a job, I can’t make the payment….HELP?? Should I stop making the payments now and use them to pay down my other debt? I only have one Credit card with a balance of $5k and a 2007 Camry that I owe $14k on. I have good credit and I want to try and keep it!!!

  • Goofy

    When should we contact the lender?

  • Rebecca

    Contact the lender ASAP. Let them know what your hardship is..whether you just don’t have the money, need to move, etc..plead your case and tell them you NEED a short sale package sent to you…if you are going that route. List the home for sale like yesterday..some lenders will want to know how many days the property has been on the market before even sending out a short package to you. If you haven’t listed it yet and you want to get the ball rolling, then tell them you had a FISBO sign on ther (for sale buy owner). Then hang up the phone and list it with a realtor let the realtor know what your situation is and if you are doing the short sale price it low…your realtor should show you comparable properties in the area that are CLOSED sales, don’t look at any PENDING sales. You want to see homes in your neighborhood that are similar to yours that have sold in the last 6 monhts…if there aren’t any, which in this market could there could very well be none…again PRICE IT LOW…don’t waste your time no matter what the lender tells you. If you get an offer then you will send that to the lender and wait for their approval. If you have a good realtor they can write a letter with providing proof of the crapy market and why they should take the offer…you will most likely get the offere accepted because banks aren’t giving a hard time with approving short sales anymoire. The bank wants to do a short sale in order to avoid the costs of a foreclosure. Foreclosures cost the lenders a lot of money and this is the last thing they want to do.

  • Cindy

    I hear what everyone is saying. My situation is similar to some of you. I had purchased a 2nd home because my daughter was finishing college and her and her fiance needed a place to stay. Being in college with two kids doesn’t aford you much. So I agreed to sell them my home and purchased another place a little further north. Well, 7 months later I lost my job and found another less paying job that didn’t afford me either place. In the mean time my daughter and her fiance relationship turned violent and she and the kids had to go into a shelter. Since I was already in financial bind, I moved back into my old house that still need work from the hurricanes and trying to fix it up and tried to rent out my newer home, but the gentleman job changed and he had to move out 2 months afterwards. Now I have 2 homes, over $10,000 cut in pay and my aunt breaks both her hips and I am taking care of 3 homes. finally I cannot do it any more, I have a child with special needs, and in private school, income has not improved, cannot work 2 full time jobs and the housing market crashes what I do with the newer home. Tried to sell it but there are approximately 10 house on the same street up for sale, newer and never been lived in that is selling for less than what I owe. So now do I short sale if I can find a buyer which I have not been able to in the past 3 months or Deed in lieu. Help!

  • valerie

    With the new debt relief programs, will the lender make you claim the loss
    as income, if the property is rental , or a second home. Which would
    be better a short sale or a deed in lieu?

  • Rebecca

    Cindy- Lower your price, make sure you are the cheapest in the area and then some. The bank will ultimately have to approve the sale, however if you are not making payments now they will lean towards a short sale vs foreclosure, which is very costly for the bank.

    Also- if you are still paying both are you really making the payments on the one you want to keep? Sounds like you should let the home with damage go into foreclosure so you will be left with less out of pocket expenses in the end. Short sale is better than a foreclosure on your credit, a died in lieu is only slightly better than a foreclosure, it is considered a voluntary foreclosure.

  • Rebecca

    The debt relief was designed for primary homes. You will receive a 1099 for the difference since the IRS will look at it as debt relief. Get a good accountant there are ALWAYS loop holes.

  • Jack Bosch

    I just wanted to make a comment to the initial article by debt kid.
    I think a few coments are also pointing in this direction but It is my understanding, that congress passed that Debt Relief act which in case of a short sale on your primary residence does NOT allow the banks to come back to you anymore and charge you for the difference between loan balance and short sale amount.

    And it is my understanding that you also now (for your primary residence) don’t have to report the difference between loan balance and short sale price as income.

    but just as a side note, I don’t know all of your particular situations but in many cases an extra income of $500 to $750 per month can save the home from foreclosure.

    would it be possible to look at some additional income possibilities to save the houses? You sound like people who did not take advantage of the “Bull market” but who just got into a bad situation and if you could you would save your home.

    I know, starting a business or looking for a second income is hard if the world looks like it is falling apart, but sometimes, the hardest times are there to show you new opportunities.

    Jack Bosch

  • Erica

    well i guess my situation is just like everyone else, i purchase a town home in july on 07, and was not totally comfortably with my mortagage payments,but my lenders was sure that i could refin in 6months(yeah right), that hasn’t happen and probably won’t happen any time soon, by the grace of GOD i have been able to make my payments on time and never late, i own a homebas DayCare in my home, and now my clients are starting to have financial problems…. I can’t get a renter to rent my property because the mortagage is way too high, i have express these concern with my lenders, and they aren’t trying to budget with the extra expense such as the high PMI, which is $700 alone, so i’m force to make a decision here…. I don’t want to mess up my credit, this is my first home and i’m proud of my home, but don’t know what to do my cureent monthly payment are almost $3000. the home in my area are selling for way less then what i paid for my home….. ANY SUGGESTION! please help!

  • Yesenia

    I am in the situation that most are in. I got my house 3 days before my marriage. We were pretty much even with our income and expenses. Two months later I found out I was pregnant. I had my baby in October and was on disability for three months. We had to borrow money to make our payments. I tried to go back to work but was unemployed until recently about a month ago that I started working again. I started full time but was changed to 32 hours per week. I looked into some info about short sale and forclosure. I think we would qualifty for a short sale. Since I have read that a short sale will damage my credit, we decided to buy a new vehicle since it will be hard later on. I am wondering if this will affect anything. We are current with our payments just because we were borrowing money to make our payments. We have a huge debt with my dad. I tried to get the loan modified but was denied help from one of my mortgages and the second smallest mortgage they are still working on it. I am going to stop making my payments so that I can pay back all the money I owe. The decision to sell the house or let it go if it goes that way has been taken. My mortgage will go up in a year or so. We could either loose the house now and save money or loose it later with having lost another 30,000 dollars. I think I would be able to buy another house w/ my dad as a co-signer, but how long would I have to wait after my house either short sales or goes into foreclosure. Does anybody have any advice for me?

  • John D

    Great article!
    Guys I need advice. My dad would never qualify under the normal guidelines to buy a home, but somehow he managed to buy on in march 06 in orlando, he has been making payments on time, except for the past 3 months because of some personal hardship. The house is worth about $60,000 less that he owes on it with two separe loans, by the same lender. He’s now considering a short sale. Is there any to arrange that I make the purchase so that my parents can continue to live in their home? My is credit good, have a stable and wouldn’t any problems getting a loan. thanks!

  • http://various Jay Hudson

    I am a relatively young guy who thought he knew much more than I really did. I was hired as a subprime lender (yeah I was one of the jerks who caused this big mess), in hindsight I feel brainwashed. Loan Officer, was my first real job after school. I wanted to buy a house but lacked some of the things that would have gotten me a traditional mortgage, i.e. two years on the job, 20% down, and a debt-to-income ratio under 38%. So let my company pitch me the same hype that we did to our customers. Anyway I bought a home (new construction) 100% financing on a stated income 3/37 Balloon Arm. If anyone is confused YES this is a 40 YEAR mortgage with a 3 year fix at 9%. My payment is $1333.69 with no escrows. I was given the normal spiel, the home will appreciate, you can refi in as little as 6 months, an ARM is a great way to keep payments low while you build reserves. A “Band Aid” loan is what they called it, in hindsight I wonder how I got tated income by a company that knew how much I made because I worked for them. Nonetheless 3K every 6 months in taxes and 450 monthly in gas bills and association dus later, I’m overextended and feel imprisoned. Did I mention the company filed for bankruptcy so I was laid off by them. My wife and I have been blessed that we haven’y missed any payments but we are living off credit cards to keep all house expenses afloat. I’m working for a bank now but the money is way slower than that mortgage money, it was coming in like dope money but all things must come to an end. We got the new Mortgage company to agree to short sell but even at dirt cheap prices we’ve had three contracts and three fallouts as my local area has been hit hard, hell the new homes in my complex haven’t even sold yet and its been two years now. Our circus act can’t continue as I’m simply getting further and further in debt. I was considering a deed-in-lieu just to end the rat race once and for all! Anybody got any advice?

  • Sarah

    In response to Jay’s story, does anyone know what we can do if we were a victim of one of these stated loans? I was looking over our loan documents the other day and I noticed that the application (taken “by phone”) for our current mortgage in Miami said that my husband’s income was about 5 times what it really is. We never signed this app and clearly should have never been approved for a $500K loan when we were already upside down in another house in Central FL. I’ve heard that some people have sued their banks/brokers for predatory lending – and won. Where do we start?

  • Derik Tutt

    This is a great site with nice discussions about real life issues people are facing. It’s terrible that a lot of people are in bad spots financially right now due to the real estate market. I’m an agent and I worked with some Brokers who were downright heartless. There would be clients who “thought” they could afford a mortgage payment of X dollars per month. I’d tell them, “What happens if things pop up? How will they afford that payments? Or how about some other unaccounted for expenses?” You know they have the nerve to say that it’s not our job to decide whether or not they can afford the house and that if they want it, let them have it. They then go on to say that we need to make a living and feed our families. Or did they mean to say “we need to pay for our cars and mortgages before the banks take them back”? I’m telling you, I believe Loan Officers and Realtors are partly to blame for all of this mess. I just hope that everyone in a bad situation comes out of it soon. Keep your heads up because your best days have yet to come.

  • Shawn

    This is a great site! Jay Hudson contact Springboard to get out of credit card debt. I wish that I had known about this option before taking out unsecured loans to stay afloat. You enter into a debt management not debt settlement agreement which lowers your interest rates and gives you a real time pay off date ( 1 to 3 years depending on your debt).

    I am interested in the deed in lieu option. Can anyone provide more insight into how their credit score was affected?

  • Nikki

    This site is really helpful. Thanks Debtkid!

  • -Dee

    I have the same question as Shawn.
    I am also interested in the deed in lieu option.
    Can anyone enlighten me into how it will affect my credit score?

  • frustated

    I have an agreed “Deed in Lieu” with my former MSHDA HUD mortgage company since Jan. 2, 2007 who did not complete the process prior to the transfer of the loan. As it stands now the mortgage was sold to another company who has not recognized the previous agreement of the DIL, and now have effected my credit report as a debt still owed of over $90,000.00. I have constantly contacted the new mortgage company to clear this matter up, but have been pushed aside several times. Please someone guide me to clear this matter, and to help repair my credit record which has effected my credit score as well.

  • debt kid

    Hi everyone, DebtKid here. Just a quick note that if you need to find an agent with short sale experience, please fill out the short form located here, or in the post above.

    I’ve been referring people for the last 6 months, and all have been very pleased with their real estate agent. Experience with short sales is very important, you don’t want just some random agent.

    Thanks, and good luck,


  • John Clark

    Justed listed my condo for sale last week. It is probably at least 30k upside down, bought it two years ago for 156k. Countywide has the mortgage after they bought it from Pulte Mortgage. When I called Countrywide, they said they now consider short sales without missing a mortgage payment if you can prove extreme hardship. I would think you might be able to keep your credit in order with this option. Has anyone dealt with countrywide or have a similar experience?Thanks for the feedback

  • Yesenia

    I finally listed my home for sale about 2 weeks ago. I wanted t o do a DIL but they said I couldn’t do it until I least had the house for sale for 90 days. I can’t make my payments anymore. I have both loans with Chase Home Finance. They keep calling from the second loan saying that I have to make a least that payment or they will put a lien on the house of my loan will become unsecured and they will charge me the whole balance. I am worried as to what might happen, but I have a feeling that they are just trying to get more money from me since with the short sale, they will get nothing. But previously they had told me that the first mortgage would give the second mortgage about 2,000 dollars to settle the debt. That is what the realtor said might happen also. Has this happened to anybody?

  • Jessica

    I just went through a short sale. I had two loans and the first mortgagee agreed to give the second 10,000, which still leaves a 50,000 unpaid debt. I’m wondering if the second will come after me in the future for this money. I had been late on my mortgage since January so my credit has already taken a 150 point loss. I’m wondering what the total will be once this short sale shows up on my credit.

  • Tamika

    Has anyone had short sale or deed in lieu approved while owning other properties. Also was wondering if the lenders require you to cash in your 401K or retirement accounts? My investment properties dont have much equity in them, but does anyone know if they will require me to sell them to pay any deficiency?

  • Anne


    on they have an entire section that deals with predatory lending and what you can do. I also am a victim of this sceme as my loan was sold 3 times and now Citi Mortgage has it and the original loan docs do not match what they have. Also please look up the “truth in lending act” if you are a victiom of predatory lending they may have to forgive your entire debt if it was fraudulent.

  • diane

    Tamika, when you receive a reply let me know. I have investment property that I’ve tried to sell and will not rcoup my investment. Would love to do a deed transfer.
    I’m just afraid of a deficiency judgement and/or proving hardship.

  • Shelly

    re Jack Bosch statement

    Do you know where I can find the debt relief bill your referring to that Congress passed? I am in the midst of doing a In Lieu of with my mortgage company and am terrified they will come after what little assets I have for the difference between the balance of my mortgage and what they sell the property for. I tried to sell it for two years and lowered the price three times but in Michigan, the market is devasted and I never got one offer. Am going thru a divorce, am on SSD and living on very low fixed income. Still, I do have some money in the bank I invested a long time ago, its all I have and I’m afraid I’m going to lose it.


  • Shelly

    In response to Jack Bosch statement

    That is not the case in every state….not in Michigan. I don’t know where you are getting your information but Michigan is a recourse state which means that the bank can come after you for the difference in a foreclosure situation. So I’m sure this depends what state you are in.

    To those of you who are asking how doing a short sale affects your credit, I have asked that many times with no answer from the mortgage company. The only ones who really know that answer is the credit bureaus. Doing an In Lieu of Deed is better than a foreclosure. But I would hire someone who is well versed in them and in negotiating with the mortgage company do it for you rather than do it yourself.

  • Marquaz

    I am a NeigborWorks certified counselor who recently left a non-profit housing agency. I have done 15 deed in lieu of foreclosure with several servicers. The key is in the financial worksheet. Loan modifications are getting easier if you have the correct contact numbers to the servicers “cream of the crop”. There are percentages that the client must fall into to qualify for a specific workout plan. Short sales are a different deal all together….If you

  • kim

    What if you do a short sale and have a PMI company who wants to come after you for $35k. The lender is forgiving the debt, but the PMI company wants what they have to reimburse the lender for. They want me to sign a 10 year note at 0% interest.

    Ever heard of this? Should I agree to it or do a deed in lieu? Which is better?

  • highlndr

    Hi Kim,
    Yes, I was presented with a similar and shocking “request” – but for more money. I said no, I couldn’t do it. I asked for details, then requested 24 hours to consider my options. We ran the numbers on what they were requesting, and they were asking me to consider signing a note to cover the maximum dollars for every possible expense related to my sale. This is scary and sounds weird, I know.
    When I said no, the “reviewer” told me she would “just mark it as seller declined and going forward to foreclosure.” I documented my detailed response to CW, and we started calling daily again – very aggressively. As it turns out, there was room for some negotiation.
    When yo say no, they may ask you for current, detailed financials and an updated hardship letter so they can figure out another (lower) amount that you can handle.
    In CA, there is no tax benefit to an individual for this out of pocket pay-off. Ask for more details.

    My sale is progressing, and we have 3 strong offers pending; but I haven’t signed final documents yet. Good luck.

  • Shelly

    Jack Boesch …. you dont know what your talking about, the lender WILL COME AFTER YOU FOR THE DEFICIENCY IF THEY SO CHOOSE!!

    I am trying to do a short sale and a Deed In Lieu; I am having a person who specializes in loan modifications do this for me. I recommend anyone who is in the same position pay someone who is qualified to do this for you, don’t attempt to do it yourself….its worth the their fee to get the debt absolved and hopefully walk away debt free. By the way, I made my payments on time for the last 20 years. Even 20 years ago they tried to tell me I could afford more house payment than I felt I could afford. I knew I wanted to be able to go out and spend some money on entertainment, I didnt want every dime I had tied up in a house. Never tie everything you have into a house payment unless you never want to do anything but sit home.

  • http://shellysaid mekab

    shelly it’s too bad that after 20 years you have to give up your property. Are there any other options for you??? You’ve invested alot of money at this point

  • mekab

    I bought a house in 2007 for 450k and now one year later the house has been appraised for $215k. My very same house is onthe market all over town for less then 200k!!!!! When we moved in the property we had $80k in equity and 9 months later there was $0k equity in the home. I’m at a point were I’m ready to walk away and just file BK and get another home in a few years. Besides a BK and foreclosure only stays on your credit for 7 years, bad credit is not cancer it can be healed. According to a market analysis. The property value in this town grows at a very slow rate and it could take about 7 to 10 years to break even. I’m not sure weather to stay or go…. I need advice

  • Sara

    Hi All,

    I am wondering if anyone has any advice for me…

    I live in MI, and bought a condo while I was single that has been up for sale for 8 months now – no offers. My problems is that I got married and moved to my (now) husband’s house, and the condo is now vacant. I have been making the payments every month b/c I don’t want to ruin my credit. Even if we did get an offer, we cannot afford the debt we will incur to sell.

    I don’t care if I ruin my own credit, but don’t want to ruin my husband’s…

    Any advice is greatly appreciated!!

  • KZ

    Thanks for your info. You have really given me some peace of mind. I’ve read some of these stories and here is mine.

    We purchased our home in 2002 in Florida and refinanced in 2006. I was moving my business about 20 miles and wanted to be sure that bills were down to a minimum in case I lost clients. So we used the money to consolidate debt and pay for the business move. I wanted a 30-year-fixed rate. I was encouraged to get a 2 year fixed then variable rate by the lender. He said that way my credit score would improve as the business grew and then we could refinance in 2 years with more equity and get a better rate. Well that’s not true. Values have gone down so far that homes in my community are on the market for $100,000 less than what I owe. And even those are not selling! We would go for a short sale but we have some minor plumbing issues, a cracked glass stovetop, and the carpeting needs replacing. My business has gone down about 45% from 2 years ago because I offer a service that clients can either do themselves or get cheaper. We are 2 payments behind. I have even taken a second job to make the monthly payments but I can’t get caught up. The interest rate is at 9.5% and climbing. I have requested that the interest rate be lowered. I found out from a realtor that prime was lowered to 4.5% yesterday. I’m still waiting to find out if they will lower the rate. If I don’t hear anything by the end of the month, we have decided to do a deed in lieu of foreclosure. I feel like I am being kind of tacky but we did not finance the washer, dryer or refridgerator so I am taking them with me. Does that pose a problem? Does anyone know?

  • mn77

    Lots of good info in here! We are dealing with a short sale situation. The part that really sucks right now is that we moved out asap before any of the foreclosure stuff was starting. My confusion starts with this, I knew we were in trouble in dec of 07 when I was having trouble making the payment then. I contacted the bank to try and work something out, however I got the until your behind there is nothing we can do for you. I think if there is a next time I am going to go through a local bank.

  • mn77

    We did the same thing with our appliances, we took them as they were not in the orginal loan, its a nice way to try to lure buyers into buying the house , but its not a neccsessity. Most people want brand new things when they move in. MY thought process was I am not going to make a profit on the house, so I took them with me.

  • DT

    How does a Deed-In-Lieu show on your credit report? Will it show up as debt settled, debt satisfied or something else?

  • kz

    So for an update. We still have not heard back from our mortgage servicer…I guess they’d rather have the house. I have heard from someone who used to work for a Title Company and has worked on foreclosures and they say DO NOT LEAVE until you’re actually kicked out. Just save your money that you can afford to pay on the mortgage. I don’t know if this is good advice or not. Any advise?

  • SNS

    Has anyone heard of a lender who was willing to negotiating a “paid settlement” or “paid satisfactory” on a credit report in a situation where the borrow was willing to agree to a deed in lieu rather than letting the property to go into foreclosure? I heard this looks better on your credit report.

  • Publius

    kz – you have options depending on what state you are in. Lenders are now working with borrowers in your situation and you may also qualify for a government program. Freddie and Fannie will announce their streamlined modification guidelines on December 15. It might be a good idea to consult a real estate attorney regarding your options — they will vary by state.

  • Vince

    As far as Jennifer’s comment as to people abusing these systems, these are business transactions between individuals and companies (banks/mortgage lenders). Folks need to drop some of the emotional content associated with this. Of course pride, sense of fair play and all of our individual emotional baggage are at the heart of some of this, but it is best to try and get beyond those. Though there is a segment of the population which was reckless in buying unaffordable homes, flipping houses, etc, as you can see many more individuals/familes are in situations where circumstances have changed and they need to extricate themselves from their current homes. Even in cases where individuals were less than responsible, the current state of the housing market has far more to do with corporate and governmental recklessness than individual recklessness. I’m not about to lose sleep over a bank losing a fraction of the money a family is losing in a short sale or deed in lieu. Use this and other sites to make a cogent, well considered personal business decision.

  • Nick

    Hello All! We as Americans sit today in the drivers seat. These big banks walking arm and arm with our politicians steal from us and rob us. They are now worried that we will walk away from our homes and the loans they sold to investors will be worthless! Yet they still bonus themselves to the tune of millions and have lost mass amounts of money with their hairbrained securitized investment products. Now they have taken tax money and are selling that money back to us at a profit or they keep it for liquidity. I say everyone in this country should apply for a loan mod, or start looking for away to find a home that is at the bottom of pricing, buy it, it will only increace in price (gain for you) and give the bank back your property and let them sell it to the next lucky fellow average Joe at a discount. Then we will all have affordable housing and give the banks (criminals) the finger and hopefully they all kill themselves. Yes I do finance and I gave my 600000 house back, but not before (KEY) I bought a bigger and better house for 310000 with an inground pool in a better neighborhood it sold for almost 710k in 2005!! It is possible! I even save 1800k per month!!

  • Andy

    I agree with Nick, except there is one other item to take care of first. Rent out the house you will be walking away from. My house is 70k underwater. I can afford the payments on my fixed 5.5% loan, but it is a financial ball and chain for my future. I’m going to buy a better house for less with my fiance. After that, if I can get a renter to cover the mortgage payment on the old house, then great. If not, I will rent it for whatever I can get, and just stop making payments. It will take nearly a year for the foreclosure, in which time I will save on my payments, and collect rent. My loan is non-recourse, so the bank can’t seize my other assets, or lay claim to my rental income. I won’t need credit cards due to the money saved/collected in this year, and by the time we want to move again, my credit would be rebuilt.

  • Sue Dellwin

    How would it work if the mortgage due is $55,000 and the house would definitely selll for something like $450,000? Would I get the other $395,000 at sale or is there a better way to set that up. My house is worth more than the mortgages.
    Thanks for any feed back from anyone!

  • Susan

    We found our dream home in 7/07, bought, rehabbed and moved in. We put our exisiting home on the market in 7/07 as well. By 9/07 I lost my $90k a year job. The old house sat on the market for a full year until my husband lost his job in 9/08. We finally were able to rent the home to a military family and they moved in 10/08. They just vacated the lease 4/09 and left the house needing $20k in damage repair. We dropped the price of the home since our bank would accept a short sale to the cost of the loan. No one wants to buy and now it’s not even worth showing. We asked the bank today to accept the deed in lieu of forclosure. They will get back to us in the next couple days.
    All I can say is that you shouldn’t worry about your credit scores. So many people are in the same situation. My husband is back at work now and his credit union is willing to work with us to refi our mortgage so we can have a more affordable payment. Our scores dropped to 570 and 620 when we had to stop paying our credit card bills in order to make mortgage payments. The credit union went back before our hardship and looked at our old scores and how we never missed any payments on anything. Do what you have to keep your family safe, happy and healthy. Every where I go I hear about people having to let homes go. It’s just the way it is right now. I feel that this is truly a depression and I agree that the politicians and banks put us in this situation. Obama could be president for the next 20 years and he will never fully clean up the mess. Good luck to you all.

  • Misty

    A quesion to Nick from his April post. I agree with what you are saying, except what if you don’t have the luxury of securing a home before you let your current one go? We are in that situation right now.
    We’ve always been the “good” people…have paid all of our bills on time for the last 19 years, we have good-excellent credit, but the economy has hit us just like everyone else. We bought a house in Idaho 9/06 for $272,000. We currently owe$218,000. Houses are not selling and we can’t afford this $1700/mo payment any more. We’ve exhausted all of our funds (even retirement and children’s savings accounts) to keep everything paid on time. Well, we’ve hit the bottom and cannot afford this mortgage anymore.
    We’ve talked to our lender to see if they would do a “Deed in lieu” or “Short Sale”. They are discouraging us or the simple fact that we have a high credit score and we are not yet late on our mortgage payments.
    What a catch!
    We call to talk to them in hopes they will work with us now (before a foreclosure), but since we are they good guys and aren’t late on payments for 3 months, they would wan’t a “cash donation (to the tune of up to 20k)” at the table in order for them to work with us. How does this make sense? If we had the cash, wouldn’t we be able to afford to stay in our home?
    We are at rock bottom but don’t want to screw up our credit. (We still need to be able to get into another house at some point). Does anybody have any great ideas? We don’t want to not pay for three months and have them give us some other excuse at that point that won’t help us anyway.

  • angela

    Will you tell me how you were able to give back your 600000 house to the bank when you have money to buy another house? I am in pre-foreclosure right now since I don’t have any income but I have some savings. I cannot afford to pay the mortgage anymore and used up my savings. I need that money to survive. What do I have to do so the bank will not go after my savings. If they do that I will be living on the street.?

  • angela

    what section of the loan document does it say it is non-recourse?

  • Darius Wells

    The lenders rarely does a deed-in-lieu. The best way to get it approved is to do it before the loan goes to foreclosure. It is still subject to investor guideline.

  • Kim

    I LOVE your response Vince! We get way too wrapped up into things we have no control over. It is a personal choice for various reasons and some people are just too prideful, or ashamed to do it even though it is causing them lots of sleepless nights!

  • Kim

    Who holds your loan Angela? They almost certainly will not come after you. Do you know how many Amrericans would be in court over this!

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  • Lisa

    We did a DIL on our home back in 2007. We received notice last week the bank is taking us to court this week for the remaining 22K + attorney fess & interest.

    We currently own nothing but our vehicles. There’s no way we can currently payback or even make payments on this balance.

    What else will they go after if we own nothing but the vehicles?

    Any suggestions on what we need to do before we go to court?

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  • Tye


    Have you filed a BK?

  • Tye

    Best solution for you, I believe, if you like the area, home, and what not is to consider a Loan Mod, and not really worry about your credit at this point. That can be addressed later. I work for a company that has helped many homeowners reduce their payment substantially and stop foreclosure. The other options others have been talking about on here short sales, deed in lieu, and such are other possible solutions, if you don’t need or want the home any longer and remember with those you do run the risk of deficiency judgements.

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  • Jean Bond

    Please do not talk about banks “losing” money, when a person forecloses, etc. What the bank loses, is a reputation with the “Federal Reserve”, plus interest payments. Banks no longer lend money, they simply negotiate the creation of paper money off the printing presses, based on your credit score. Your signature / credit score, creates the money. The difference is very important. Foreclosure, bankruptcy, etc., do not ruin the economy. What ruins the economy, is the very existence of the Federal Reserve, and its practices of creating new money.

  • Stuck

    I currently own a home, my first, which is uninhabitable. It just barely passed inspection and a “friend” was going to help me fix it up, had access to builders, craftsmen, etc who were all certified workers to come and help. They gutted my home and never came back. I spent two years with the help of the friend who made the big promises, and much on my own doing the framing, insulating, electric and drywall. Said friend did the plumbing, turns out he was unqualified to do it, and it all has to be removed. The rest of the building is sound, but the home has no kitchen and only a partial bathroom. There are no finished rooms in the house, and I cannot afford to hire someone to do the work to bring the home to a habitable standard. I’m paying $1396 a month for the mortgage and need to get rid of this home. I have a small child and have been staying at a friend’s house, at the cost of about $600 monthly, in order to provide a safe home for my child. I put the house on the market “As Is” for six months and got no offers. I’m being told that the house will need to be put back together in order for anyone to make an offer. There is no way I can fix this house, pay the mortgage, and pay to live elsewhere. My credit is decent, rebuilt after my divorce from a financially irresponsible ex husband, and I hate the idea that I am going to have to destroy it again to get out of this house. Recommendations?

  • crimson

    We currently have our house for sale, and I was thinking about lowering the sale price to try to get a short sale. However, in Illinois, the mortgage company can seek a deficiency judgment on a short sale. However, they do not on a deed in lieu… so why lower the price? Anyone have any answers?

  • KBA

    My home is schedule to be foreclosed on 08/03, today is 07/31 which means I only have 1 working to act. Can I still ask for DIL? I have been told there is not enough time for Short Sale.

  • Carole

    The “benefit” to the lender of a Deed in Lieu of Foreclosure is that they don’t have to go through the expense and time of a foreclosure. I cannot imagine what the benefit would be to them when you wait until the day before!
    Generally speaking, I think it is always better to be acting early on. It doesn’t mean that the lender is going to be more cooperative or realistic… but, waiting to the very last minute that just isn’t the way to handle this sort of dilemna..
    I wish you the best anyway!

  • B.Y.

    I am in the process of determining what I want to do with my home. I built my home in 2009 for 149K. It appraised for 154k in 2009. It appraised now in 2011 for 123K. Yes, 123K and the principal balance is 145K. My payments have gone straight to taxes..I am a single mother of one and my son will be graduating next year from high school. I want to make sure I am prepared for any expense that may come with college. He’s never been on my health insurance but next year will be due to my daddy is retiring. Also, my son will be on my auto insurance soon. I took advantage of the 8k tax credit back in 2009 and think I have to be in my home one more year to begin the selling process. If I would have known then what I know now about Escrow shortage + property tax increase = mortgage payment increase, I would have continued to rent a apartment. I am so frustrated and kicking myself for wanting a part of the “american dream.” Home ownership is not ownership until you’ve paid the home in full which is between 15-30yrs. I can’t believe the home is 30k updside down in two years. I am so ready to get out of this home I can taste it. I want to put it behind me and move on. Any advice on which one I should do short sale or deed in lieu would be great. I know I have to proceed with the short sale before the deed lieu. Also, I have never been late on a mortgage payment but may have to be to show that I forsee a hardship. Great comments on this website..

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