Kentucky Deed in Lieu of Foreclosure Law
A deed in lieu of foreclosure only means you automatically and immediately lose possession of the home. A deed in lieu will not normally be accepted when there are other liens against the home or a second mortgage. Each lien and mortgage has to agree to release their lien. You have to work to get all of them to agree; this takes time and work.
The advantages to the homeowner
There is no substantial advantage to your credit for surrendering the home in a deed in lieu. You are normally still financially liable for the mortgage deficiency. Even if you have it in writing it may not be enforceable because there may be no consideration for the 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 who will sue you later.
Stopping the tax problem of a foreclosure
Tax regulations require the bank to file a 1099 giving you the deficiency as income when the bank charges off the loan for a tax deduction. There is no exception to this law; the creditor has to file the 1099 if they take the deduction. It must be reported as income. Taking the tax deduction creates an income tax problem for the homeowner.
The only way to prevent the deficiency and tax debt it is to file bankruptcy or otherwise prove insolvency. This bankruptcy should be filed before any foreclosure sale to avoid the tax. Filing before the sale also delays the sale for an additional six months. If one spouse files bankruptcy separately and then the other both cases will delay the foreclosure for about a year. One person may file a Chapter 13 and then later file a Chapter 7. Some people have delayed sales for years.
Avoiding foreclosure problems
I don’t like to sound cruel, but these are the facts. You can defend a foreclosure, or you can file bankruptcy to help avoid these problems. Instead many people trust the bank for free legal advice and work. All this does is cost the homeowner in the long run. It often surrenders the home early. The debtor loses privileges and rights. It costs the homeowner money. Instead, you should use a foreclosure lawyer. The result of trusting the bank costs you because the bank and their attorney work for their interests, not yours. They are not your friend or lawyer.
If you have surrendered your home, you can recover. The problems from surrendering the home can be cleaned up. But costs you a lot more than if you do this correctly. With a Deed in lieu, you lose about two years of free rent in the home and a chance to save the home. Please download my little book on bankruptcy and foreclosure, it takes about 3 hours to read, and it will explain foreclosure fully.