Legal Question in Real Estate Law in California
Deed-in-lieu of foreclosure
My partner has moved out and I'm stuck with a house that I cant afford. She's on the mortgage and the deed. There is no equity in the house. I'm not in foreclosure yet - but I am not able to continue to make the payments much longer. A friend told me that she quit deeded her house back to the mortage company while she was still current on the loan and walked away from the house without a foreclosure impacting her credit. It sounds too good to be true - is it?
3 Answers from Attorneys
Re: Deed-in-lieu of foreclosure
If she deeds the property to the lender. Then it may still impact her credit. And of course you may do the same thing.
Re: Deed-in-lieu of foreclosure
They can affect credit but they can work quite nicely when properly done.
Re: Deed-in-lieu of foreclosure
A deed in lieu of foreclosure does nothing to protect her credit. The bank will eventually need to sell the house, and if they sell it for less than what is owed, they can and probably will show a negative report on her credit.
Are you on title and on the loan, too? If so, she could only deed back her half of the property. You will still need to work with the bank.
If at all possible, keep making the payments, even if you need to bring in room mates to help pay the mortgage. There are a lot of reasons for this:
1. It is hard enough getting a home loan without a foreclosure on your record.
2. Prices are going up ... it will be worthwhile in the long run.
3. You could get hit with a 1099 if the bank sells the property for less than you owe. This will be taxed to you and the other person as ordinary income for "debt relief."
Try to get the bank to grant the house back to you only. Call me if you need some help.
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