What does Deed in lieu of foreclosure mean?

[Booner72]

Hi - just out of curiosity, what does this mean?  That you give they deed and they don't go after you for lost money?  The previous owner of my house ( first time i've said that) did a deed in lieu, and the language states they bank will not take any further action....

Would this be better for someone's credit than a full on foreclosure?  How would this show up on credit reports?

[TugChris]

it is a fancy term for a short sale

[Booner72]

Well in this case it isn't a short sale because we are buying the house directly from the bank - the previous owner did the deed to the bank....???  Maybe I'm not sure what short sale means then.

[TugChris]

When the lender agrees to accept less than the owed amount as payment in full and takes possession of the house instead of full foreclosure proceedings.....

[TugChris]

I.e. if he owes $150k.....the banks agrees to take $100k as payment in full.....you buy it for $100k with no leins against the property and he gets a satisfaction of mortgage

[Booner72]

Thanks so much!  Does that mean her credit isn't ruined or what?

[chasmith]

I can't say what the impact of a DIL is on score, but I can tell you that for purposes of getting another mortgage a DIL is treated the same as a foreclosure, can't get an FHA mortgage for 2 years, convention 3 years or more after the date the DIL was recorded.

[TheR105]

DIL is not a short sale. The original mortgagor is voluntarily consenting to the foreclose. This will make the foreclose process shorter because a consent judgment is entered and 30 days later the deed is recorded. The lender agrees to not pursue the mortgagor for any losses, credit is still damaged the same.

[Lel]

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@TugChris wrote:
it is a fancy term for a short sale

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This is not correct.  Deed-in-lieu is a negotiated process in which a borrower "turns in his keys" to the bank as a way to avoid formal foreclosure proceedings.  No actual sale takes place in the process, though borrowers often attempt to short sell the home prior to DIL.