How Does a Deed in Lieu of Foreclosure Work?
Whitney and Bart Smith: Deed In Lieu of Foreclosure
Whitney and Bart Smith own a home in the DuPage County portion of Naperville, Illinois. They purchased their home in 2007 for $750,000. It is now worth $450,000 and they owe $600,000. When they purchased the home, both Whitney and Bart were both engineers for Tellabs and had a combined household income of $200,000 a year. In mid-2010, Bart was laid off.
They managed to make their mortgage payments by tapping into their savings account when Whitney's income fell short. In early-2011, Whitney was also laid off. By then, Bart had found a replacement job, but only making half of his previous income. The couple continued to make their mortgage payments by tapping into their dwindling savings. In the summer of 2011, they decided that they were throwing good money after bad. They listed their home for sale, but had no luck finding a buyer.
They finally asked their lender for a deed in lieu of foreclosure. After submitting their financial paperwork and demonstrating their economic hardship, their lender reluctantly agreed to a deed in lieu of foreclosure. Whitney and Bart got a specific move-out date from the lender, and the lender avoided the costs of taking the property through the foreclosure process. The lender also waived its right to collect a deficiency, giving Whitney and Bart some clarity and peace of mind. This kind of certainty is the luxury of the informed.
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