Deed in lieu of foreclosure is an option available to some homeowners who have attempted in good faith to sell a home they are no longer able to afford.
This option only applies before foreclosure proceedings have begun, and essentially entail a borrower offering the deed of the property to the lender.
If the lender agrees, the mortgage agreement is canceled.
So what’s the benefit of a deed in lieu of foreclosure? For the borrower, the credit hit that comes with foreclosure can be avoided.
For the lender, the property quickly becomes bank property without the costs that go with foreclosure, and with much less risk of property damage from the former homeowner.
But there are downsides, too. Though you avoid foreclosure, you still run the risk of accruing a deficiency judgment against you if the ultimate sale price of the home is lower than the loan.
And if the bank instead forgives the deficiency judgment, they are required to report any amount greater than $600 to the IRS on a 1099 – leaving you on the hook for a potentially huge tax burden.
If you’re not sure the best way to avoid foreclosure in New York, call the Queens bankruptcy and mortgage attorneys at Zelenitz, Shapiro & D’Agostino at 718-599-1111 for a free, confidential consultation.