What is Deed in Lieu of Foreclosure?
Definition: The homeowner turns the deed over to the mortgage company to avoid foreclosure. The bank may agree to a Deed in Lieu of Foreclosure to not pursue you for a deficiency. But it will still cause a tax problem. Even if the mortgage company will agree to not pursue the deficiency the IRS regulations require the bank to turn in a 1099-c.
The Disadvantages or a Deed in Lieu of Foreclosure.
You may be able to save yourself and the mortgage company the expense and trouble of foreclosure. But it comes at a cost to you of immediately giving up the home. You are still be taxed as income for the amount that was forgiven. Many times this is not an option if there are other mortgages or liens on the property. To convey title it may require a foreclosure sale to get rid of a second mortgage or judicial liens on the property.
Why filing an answer and defending the foreclosure may be better than a deed in lieu
Many people choose to litigate or stay in the house rent free until the house is sold. This allows people to save up house payments they would have made. You may need to pay an amount down on a new home or lease with an option to buy. Under Kentucky laws and regulations most people will qualify for a prime rate mortgage 2 years after filing bankruptcy. You can get a low rate 3 years after a foreclosure sale. The foreclosure has a greater effect than a bankruptcy. . We can file an answer to your foreclosure to give you additional time to do a work out with your mortgage company. Or you may need to file a bankruptcy to delay, avoid or stop the foreclosure. Here is a general timeline of the foreclosure process.
The Foreclosure process.
The foreclosure process normally takes less than 6 months if no answer is filed and from 18 months to over 2 years if an answer, discovery and bankruptcy is filed. Even if you file bankruptcy and surrender the property, a foreclosure may be required to transfer the ownership to the bank or new buyer in order to get a clear title. Never simply walk away from the property.
As long as the property is in your name property taxes will continue to accrue and you are liable for these property taxes until the property is transferred. At the time of the foreclosure sale these taxes are normally paid first before the mortgage is paid. Also as long as the property is in your name you must maintain the property. Building code violations can be issued for not mowing the grass or not keeping up the property. These code violations can be criminal. Also the water bill includes a waste water portion which continues to accrue even if you turn off the water.
When the property transfers out of your name these maintenance items are no longer your responsibility and many of the items such as the property taxes are paid when the property is transferred. If you are stuck in a foreclosure see us for foreclosure help. Please beware of Rescue Scams claiming to help you stop a Kentucky foreclosure.