Would Don Trump Use a Deed In Lieu of Foreclosure? 

Home owners often have to choose between making mortgage or credit card payments.  Today many people must have credit cards to live and they just give up on their mortgage payment and so the number of home foreclosures continues to climb. 

These home owners are the creators of something called "jingle mail".  They just put their house keys into an envelope and mail them to the bank.  The postman delivers a package of jingling mail to the bank.

These financially distressed home owners might be better off using a deed in lieu of foreclosure.

Value of Property Pays Debt

A deed in lieu of foreclosure is where an owner facing foreclosure grants ownership of the property to the lender, as payment for the debt. The value of the property serves to payoff the debt payoff and the home owner no longer owes anything to the lender.

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Another name for "deed in lieu of foreclosure" is "estoppel deed" or "deed by estoppel". In an estoppel, a previously taken action precludes other present or future actions. Once having a estoppel deed, the lender can't foreclose the property owner.

Deeds in lieu of foreclosure most often take place when there is some equity. In some instances, the homeowner gets some compensation. This is usually just enough to make things happen. Otherwise, the lender will be better off carrying out the foreclosure process. Generally, by the time this arrangement is agreed upon, the owner is out of time and with no better alternative.

Small Lenders Only

In most cases only private parties or smaller lending institutions owning the debt will agree to accepting deeds in lieu of foreclosure. You are seldom able to strike such deals with larger institutions.

The deed in lieu offers several advantages to both the borrower and the lender. For the borrower it immediately releases him or her from most or all of the personal indebtedness associated with the defaulted loan.

Often the lender will require that the home has been listed with a real estate agent for at least 30 days and there are no other liens on the property.  Some lender require that the property be vacant.

The home owner may face income tax issues resulting from the lender forgiving part of the debt (which the IRS will likely treat as income, even though no cash is received n the transaction).  And yes, a deed in lieu of foreclosure will have a negative effective on your credit history.

A deed in lieu is something you should only consider as a last resort and that's something Don Trump has never had to do.  A better choice would be a short sale....

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