Deed in lieu of foreclosure credit report

Does a deed in lieu of foreclosure hurt your credit? How does it affect your chances of buying a new home or getting new credit cards?

Let’s discuss.

A deed in lieu of foreclosure involves your signing ownership of your property to the mortgage lender. You sign a grant deed, warranty deed or quitclaim deed to them, and they own your house. It is done instead of a full foreclosure proceeding.

The thing is, that there are two things you must do if you want to do a deed in lieu of foreclosure. Credit report wise you should negotiate with the lender so they report this as PAID - SETTLED or better yet PAID - SATISFACTORY although they may be hesitant to do this.

Otherwise, deed in lieu looks like a foreclosure on your credit report. And you can expect 50 - 150 points to be taken off your FICO score just the same as if you had a foreclosure.

Secondly, you should get the mortgage lender to waive the right to go after you later for their financial loss. This is known as a deficiency waiver and if you don’t get them to do this, they can pursue you afterwards in some cases for the amount you owe, their costs and fees and interest and losses and so forth.

If you do things right, a deed in lieu of foreclosure is useful but it isn’t something most lenders in most states want to do. They prefer foreclosure. But either way, make sure that you protect your credit report as best you can. FICO scores are very important in this day and age.