If you are struggling to make your mortgage payments, contemplating foreclosure can be a devastating thought. Foreclosure is complicated and affects your credit for years to come. The embarrassment of losing your home adds to the stress of the process. A deed in lieu is an option to explore. Although it does not solve all problems related to your financial issues, it may alleviate some of the mounting pressures you may be facing. There are advantages to a deed in lieu, which may make this avenue more appealing to take. Contact a Chicago deed-in-lieu attorney to determine your options to avoid foreclosure.
What Is a Deed in Lieu?
A deed in lieu transfers a home’s title from the homeowner to the bank that holds the mortgage. A deed in lieu serves as an alternative to foreclosure. Deed in lieu is an option many homeowners choose to avoid the damaging nature of foreclosure.
Many lenders are open to accepting a deed-in-lieu arrangement to avoid the time and expenses associated with the process of foreclosure. At the end of the deed-in-lieu process, the lender holds the deed to the property. The debt on the property no longer attaches to the owner. Additionally, the prior homeowner no longer has any equity interest in the property.
Is a Deed in Lieu the Same as Foreclosure?
Differences exist between a deed in lieu and foreclosure. A deed in lieu essentially provides that you and your lender have agreed that you cannot fulfill your loan payments. Due to this agreement, the lender agrees to avoid putting you into foreclosure. In exchange, you agree to transfer the property to your lender.
Completing the transfer releases your obligations under the mortgage. Although a deed in lieu appears on your credit report, it is not as damaging as a foreclosure. In many instances, the lender may offer financial incentives to leave the property in good condition.
A foreclosure removes you from the property, and the lender takes control. A foreclosure drastically harms your credit score and remains on your credit report for seven years. This will prevent you from buying a home during this seven-year period. So even if you regain control of your finances, the harm of a foreclosure follows you for years. Additionally, a lender is unlikely to offer financial incentives for leaving the home during foreclosure.
Requirements of a Deed in Lieu
The primary requirement for a deed in lieu is that the agreement be entered into voluntarily by both parties. If the court determines an involuntary deal exists, the court may deem the contract void. Since the lender relieves the homeowner of their debt, the lender is often in a stronger position than the homeowner. Therefore voluntariness is a vital element of the deed in lieu.
Once the parties agree, the lender typically prepares the deed in lieu. The agreement will include a statement that the homeowner agreed voluntarily.
The agreement must also show that the homeowner’s loan amount is close or equal to the value of the property transferred. Absent this relatively equal exchange, the deed in lieu could face arguments for undue influence or duress by the lender.
How Does a Deed in Lieu Affect My Taxes?
Ordinarily, the Internal Revenue Service (IRS) treats canceled debt as taxable income. However, the Mortgage Forgiveness Debt Relief Act relives taxes on up to $2 million of forgiven debt on a primary residence mortgage. The Mortgage Forgiveness Debt Relief Act applies to mortgages between the years of 2007 to 2016.
Not all people qualify for debt forgiveness. Your deed in lieu must include language regarding debt forgiveness. Debt forgiveness is an advantageous option if you owe more than the value of your home.
If you are unable to qualify for debt forgiveness, you may seek relief by claiming insolvency. Insolvency means that you owe more in debts than your assets. If you can successfully prove insolvency to the IRS, they may waive the tax of your debt.
Contact a Chicago Deed-in-Lieu Attorney Today
If you’ve fallen behind on your mortgage payments and are considering a deed in lieu of foreclosure, contact a qualified Chicago deed-in-lieu attorney today. At Vantage Group Legal Services, we will match you with a network attorney who will represent you through the entire deed-in-lieu process. We will fight to ensure that your interests are protected as we work with your lender. The mission of Vantage Group Legal Services is to bring together the best legal professionals and serve our community at an affordable price. We are focused on providing members of our community with high caliber legal representation. Facing foreclosure is a scary experience. Our exceptional legal services team will listen to your situation and provide you with the best options moving forward. Don’t delay and fall further into debt. Contact the Vantage Group Legal Services team today for a free case review!