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Deed in Lieu of Foreclosure - How Deed in Lieu of Foreclosure Works

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Definition: Deed in lieu of foreclosure is a way to get out of a home loan. A borrower who cannot pay his mortgage may attempt a deed in lieu of foreclosure transaction. Instead of going through the foreclosure process, the borrower hands his keys over to the lender.

Borrowers like the deed in lieu approach because they can get free from their mortgage quickly. In addition, a deed in lieu of foreclosure transaction may be less damaging to the borrower's credit.

Lenders will accept a deed in lieu of foreclosure because accepting the deed may be easier and faster than going through the foreclosure process. In addition, they take control of the home immediately -- instead of allowing the borrower to live there without paying during the foreclosure process. However, the bank still may suffer losses, and they have to sell the house themselves.

There is no guarantee that your bank will accept a deed in lieu of foreclosure. You have to communicate with them and see if deed in lieu is an option. Ideally, you should communicate about any financial troubles long before you start thinking about deed in lieu of foreclosure.

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