Deed in lieu or foreclosure

[apb739]

[justbroke]

There is no benefit for you (but please read my last sentence to see if there could be a benefit!).

The bank is trying to save money. If they actually go through the foreclosure process, it will cost them at minimum about $5K. A deed in-lieu-of foreclosure is much much cheaper (probably less than $1K to get a notary to you, sign some papers, and record the new deed).

Ask them if this is a cash for keys offer! Tell them if they pay you $1K, you'll do it.

[apb739]

Will this impact the 3 year FHA rule on a foreclosure. Is a deed in lieu viewed the same by FHA?

[justbroke]

Will this impact the 3 year FHA rule on a foreclosure. Is a deed in lieu viewed the same by FHA?

I believe it's the same as a short sale or foreclosure. An FHA lender may be able to tell you specific of the "new" underwriting requirements on the FHA programs.

[frogger]

Our local banks will not do a deed in lieu of foreclosure at all. They foreclose on everything. According to them, they foreclose to make sure they have a clear title to the property.

[HHM]

Our local banks will not do a deed in lieu of foreclosure at all. They foreclose on everything. According to them, they foreclose to make sure they have a clear title to the property.

That sums it up.

You can try for a DIL, but big picture, most banks won't do them for the above stated reason.

[Tom_Mi]

Regarding concern for FHA waits....a local bank here told me that since they self-fund their loans, they don't particularly care about FHA guidelines and waiting periods.

If I show up with 20% cash, good FICO and a good job, (and a rational excuse for the BK/Foreclosure) they'll disregard the BK/Foreclosure.


So you may want to check with a few local banks and see if they self-fund and what their guidelienes truly are.

[hereforinfo]

If the bank is offering, I would do it if I were you. A DIL is definitely better on your credit report than a foreclosure, and it may be easier to get mortgage financing sooner. You have nothing to lose, right? Just make sure you read the terms very carefully.

[HHM]

If the bank is offering, I would do it if I were you. A DIL is definitely better on your credit report than a foreclosure, and it may be easier to get mortgage financing sooner. You have nothing to lose, right? Just make sure you read the terms very carefully.

What gives you that idea? Based on everything I have seen, the opposite the case, a DIL and foreclosure are treated the same.

[justbroke]

What gives you that idea? Based everything I have seen, the opposite the case, a DIL and foreclosure are treated the same.

I agree.

A DIL is definitely better on your credit report than a foreclosure...

Everything I've seen ranks a foreclosure, deed-in-lieu, and a short sale, as significant derogatory information. In each case, the lender received less than the value of the collateral.

In the credit analysis business... receiving or settling for less than the value of the loan, is a bad thing. When FHA themselves treat all three of those conditions equally, that gives you a clue as to the significance of each.

In this case, the lender has asked for a deed-in-lieu so I suggest only that the original poster attempt to get some sort of cash for keys.

[NewLifeAhead]

What gives you that idea? Based everything I have seen, the opposite the case, a DIL and foreclosure are treated the same.

I agree HHM. Nearly identical as far as I can see/read. But for the OP, this foreclosure wouldn't show on their credit report since there was a discharge and no reaffirmation. I know you can still see it in court records but not on the credit report, correct?

[justbroke]

I know you can still see it in court records but not on the credit report, correct?

The credit report would show IIB. However, when attempting to get a new loan, the underwriter (FHA, Fannie, Freddie) will check to see the disposition of the loan. Of course, they'll ask you too. The underwriting guidelines for FHA, at least, precludes you getting a new loan within 3 years** of the occurrence of any of those three actions (foreclosure, deed-in-lieu, short sale).

(**Note: I'm unsure if the new FHA rules are 3 years or 4 years... it seems to have changed recently.)

[NewLifeAhead]

The credit report would show IIB. However, when attempting to get a new loan, the underwriter (FHA, Fannie, Freddie) will check to see the disposition of the loan. Of course, they'll ask you too. The underwriting guidelines for FHA, at least, precludes you getting a new loan within 3 years** of the occurrence of any of those three actions (foreclosure, deed-in-lieu, short sale).

(**Note: I'm unsure if the new FHA rules are 3 years or 4 years... it seems to have changed recently.)

Thanks for the info. I'm starting to go through this process as well (foreclosure).

[hereforinfo]

Everything I've read says that the DIL will look slightly better to a future lender because it shows that you cooperated and gave the collateral back to the bank without requiring them to go through the foreclosure process and all the expense. It will also get the title out of your name sooner so that you're no longer liable for anything happening to the property. Plus the 3 year clock to be eligible for a new FHA mortgage will start sooner than waiting several more months for the deed to change hands.

Foreclosure is the worst thing you can have on your credit report. DIL is slightly better, and short sale is better. Both the DIL and short sale will end the borrower's string of late payments sooner than a foreclosure so there are fewer total lates reported to credit bureaus, and in some cases the short sale doesn't even require any missed payments. All three scenarios will require a 3 year wait for an FHA loan. But like I said, the clock starts as soon as the deed changes hands so if a DIL or short sale gets that done sooner and with fewer late payments then it's a good thing if you think you may want to own a home again in the next few years.

Maybe most of the above is not relevant to the OP. But for someone else it may help someone else.


Aha. I just found something else. According to Freddie Mac's underwriting guidelines, the timeline to obtain a new loan is longer for a foreclosure than for a DIL or short sale. With documented extenuating circumstances, the requirement is 36 months of established credit after a foreclosure, 24 months after DIL, 24 months after a short payoff related to a delinquent mortgage, and 24 months after a bankruptcy discharge. Without the extenuating circumstances: 60 months after foreclosure, 48 months after DIL, bankruptcy discharge, or short sale related to delinquent mortgage. Fannie Mae follows the same guidelines.

http://www.freddiemac.com/learn/pdfs/uw/caution_remind.pdf

(FYI: extenuating circumstances = the foreclosure/bankruptcy/DIL was caused by something outside of the borrower's control, with 3rd party documentation confirming the event. Examples are death of a wage earner, severe medical crisis, or loss of job. Inability to sell the home because of job transfer or relocation does not count, according to FM.)

[justbroke]

Interesting, are those the new 2009 Guidelines? I forgot what they call it, like FHA.2009 or something?