Kentucky Deed in Lieu Law
A question on Kentucky Deed in Lieu Law as answered on Avvo:
A deed in lieu of foreclosure only means you automatically and immediately lose possession of the home. There is no substantial advantage to your credit for surrendering the home and you are normally still liable for the mortgage deficiency. Even if you have it in writing it may not be enforceable because there may be no consideration for such a new contract. The bank had the right to the home after you defaulted. They also have the right to collect for the deficiency often they sell these debts to debt buyers that will sue you later.
Also when the bank charges off the loan for tax purposes tax regulations require the bank to file a 1099 giving you the deficiency as income. There is no exception to this law, they have to file the 1099 if they take the deduction. It must be reported as income. This creates an income tax problem. The only way to prevent it is to file a bankruptcy or otherwise prove insolvency.
I don’t like to sound cruel but these are the facts. You can defend a foreclosure or you can file a bankruptcy to help avoid these problems. Instead many people trust the bank to do your legal work for you. All this does is surrenders the home early. You should use a foreclosure lawyer. The result of trusting the bank costs you because the bank isn’t your friend or lawyer. The problems from surrendering the home can be cleaned up but it will cost you a lot more than if you do this correctly. With a Deed in lieu you lose about 2 years of free rent in the home or a chance to save the home. Please download my little book on bankruptcy and foreclosure and it takes about 3 hours to read it and it will explain it fully.