Deed In Lieu Of Foreclosure?

Lounge By jonahsmom Updated 14 Oct 2010 , 2:34pm by LisaMarie86

jonahsmom Posted 8 Oct 2010 , 2:35am
post #1 of 7

Anyone have experience with this?

Last summer the zoning where our house is located changed from residential/commercial to straight commercial. My boss, an attorney, is on the planning & zoning commission and said that we could live there as long as we wanted, but that when/if we wanted to sell we would have to sell commercially.

Our house needs a new roof, we need new carpet, new windows - I called our banker today to check on refinancing the loan we have through a different lender (who we HATE) and getting extra to make the improvements we need. Long story short, he spoke with his appraiser and they're not going to be able to help us because if we default on the loan, they'll have a hard time unloading the property. He said that, essentially, the city changing the zoning has made it so difficult to resell the property because the buyer pool has been narrowed down sooooo much by the rezoning issue.

Our current lender happened to call tonight - they always give a disclaimer at the end about helping with short sell, deed in lieu of foreclosure, etc. if you're not able to make payments. So I asked about the deed in lieu process, how it affects credit, etc. He said that it doesn't affect credit like a foreclosure would.

If any of you have had experience with this, I would definitely appreciate any advice you could offer. We have a balloon payment in about 5 yrs and if we're not able to refinance now, we won't be able to then either and will end up having to walk away at that point anyway. The banker agreed and thinks that we are in a crappy situation and feels that what has been done to us is completely unfair. I guess I just feel that if we're going to end up walking away in 5 years for this same reason, shouldn't we get out while the getting's good?

Thanks!
Alyssa

6 replies
indydebi Posted 8 Oct 2010 , 2:57am
post #2 of 7

about 25 years ago, when I got divorced from my first husband, we couldn't sell our house and neither of us could afford to make the payments. We went to the mortgage holder and I just flat out asked him, "Ok, you've gone thru this more than we have. What are our options?" He mentioned that we could do a "voluntary surrender", which basically sounds like what you're talking about. We'd "voluntarily" hand the house back to the bank.

While it didn't affect our credit "like a foreclosure would", it's STILL a big negative on the credit report. however, you can put an explanatory statement on your credit report telling your "side" of what happened to the zoning law and it caused you to not be able to maintain the house as it needed, forcing you to have to turn the house over to the bank. (or whatever you'd like to put on there.)

Please remember, this is what was an option for us 25 years ago .... I conceed many things may have or could have changed since then.

jonahsmom Posted 8 Oct 2010 , 1:18pm
post #3 of 7

What you're saying makes complete sense.

I did do a lot of research at the University of Google last night and see that there are ways to make sure that it is reported as "paid-settled" or "paid-satisfactory" or R0 (which is unrated). Anything else and it will show up adversely on the credit report.

I actually emailed my boss late last night - he does regular foreclosures and I posed the question to him, pretty much the same way I posed it here. We'll see what he says. To me, our best option would be to find another house and deed this one back to the bank. Our banker knows about the predicament we're in, and already offered an "in-house" loan, but the house would have to appraise at a certain amount - which it won't do because of the zoning situation.

My fear is that our best option will be to deed the house back to the lender and we won't be able to secure funding on a different house because of our bankruptcy history. It's a big effed up mess!!!!

Hopefully my boss will have some GOOD answers for me! My mom said the city should just buy our house, like they're buying all the other ones down the street. The problem with that is they won't likely give us what we need out of it. I suppose at the very least they would need to just pay off what we owe, but we would like a little something for downpayment on the next house, too.

Can you tell I talk a lot when I'm super frustrated!? Sorry!!!!!!!!!

TheCakerator Posted 8 Oct 2010 , 3:45pm
post #4 of 7

I don't have much in the way of advice here, but just wanted to emphasize (strongly) to check out if this "voluntary surrender" will effect your credit or not. A lot of times the people who say it won't, don't really know if it will or wont, know what I mean? It's so easy to roll something off the tongue, to make it look good (to get your business, etc.) And unfortunately people don't investigate like they should, and whamo you soon find out that what you were told, isn't what REALLY happened, and now your credit is suffering big time. Just be thorough before you make any decisions.

indydebi Posted 8 Oct 2010 , 3:53pm
post #5 of 7
Quote:
Originally Posted by TheCakerator

I don't have much in the way of advice here, but just wanted to emphasize (strongly) to check out if this "voluntary surrender" will effect your credit or not. A lot of times the people who say it won't, don't really know if it will or wont, know what I mean? It's so easy to roll something off the tongue, to make it look good (to get your business, etc.) And unfortunately people don't investigate like they should, and whamo you soon find out that what you were told, isn't what REALLY happened, and now your credit is suffering big time. Just be thorough before you make any decisions.


Agree.

A "voluntary surrender" DOES affect your credit and affects it negatively. (Sorry if that was unclear in the first post.) As it was explained to me decades ago, it's basically one step above a bankruptcy. Still at the bottom. Still says "they didn't pay for the house and it went back to the bank". the only add'l message it adds is how you "helped" the bank because they didn't have to incur full foreclosure costs.

cakesbycathy Posted 8 Oct 2010 , 8:46pm
post #6 of 7

My DH is a real estate investor so I have a different perspective on this. Obviously the whole thing is really complicated but IMO:
Given the state of the market if you can get out without having to owe anything I would take it and run. Yes, it would be nice to get a "little extra" for a down payment on something else, but don't make that the reason you hold out on getting out of the house.

LisaMarie86 Posted 14 Oct 2010 , 2:34pm
post #7 of 7

With the way the market is in Indianapolis at least you are lucky to sell a house and even luckier to get what you paid for it when you sell it. I know one of the streets on my block has I think 8 houses are on sale and they have been for months. This economy is horrible. I would say if you can do something that doesnt negatively affect your credit too much I would go for it.

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