Deed In Lieu Of Foreclosure

A Deed In Lieu of Foreclosure (DIL) is another option that you have to stop foreclosure in Colorado.  A Deed In Lieu of Foreclosure is essentially giving your house back to the bank and being able to walk away.  The  first mortgage holder will not pursue a deficiency judgment if they approve a  DIL.  This sounds good at first, but there are some consequences to a DIL that you need to be aware of.

Deed in Lieu of Foreclosure is reported virtually the same to the credit reporting agencies as a foreclosure.   A DIL will not be as damaging to your credit as a foreclosure, but will still have a negative impact.

If you have more than one mortgage on your property a DIL will not do anything to settle the second mortgage.   Most banks will not offer a DIL on the first mortgage until you negotiate a settlement with the second mortgage holder.  It is possible for you contact the second mortgage holder and negotiate a settlement by either paying them a lump sum of money, or by signing a promissory note to release their lien on the property.  Before you settle with the 2nd lien holder make sure that the 1st is going to approve your DIL.

Most banks offer Deed In Lieu of Foreclosure as an option to avoid foreclosure, but few DIL’s are actually granted to homeowners.    Homeowners should first consider a Short Sale on their property, and pursue a DIL only if the Short Sale is unsuccessful.

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