Practice Areas

• Divorce
• Child Custody & Visitation
• Child Support
• Spousal Support
• Domestic Violence
• Chapter 7
• Chapter 13

Families in Temecula, Murrieta, Menifee, Lake Elsinore, in fact all of Riverside and San Bernardino counties are facing the same question, namely do I continue to pay for my home that is tends of thousands underwater, or do I let it go back to the bank?

There are no easy answers to this question. Each individual situation is different.

Deed in Lieu of Foreclosure

With a deed in lieu of foreclosure, you give your home back to the lender (the "deed") in exchange for the lender cancellation of the loan. The lender promises not to initiate foreclosure proceedings, and to terminate any existing foreclosure proceedings. Never trust a lender. Make sure that the entire agreement is in writing. If it is not in the written document, it will not happen.

Before the lender will accept a deed in lieu of foreclosure, it will probably require you to put your home on the market for a period of time (three months is typical). Banks would rather have you sell the house than have to sell it themselves.

Benefits to a deed in lieu. Many believe that a deed in lieu of foreclosure looks better on your credit report than does a foreclosure or Bankruptcy. In addition, unlike in the short sale situation, you do not necessarily have to take responsibility for selling your house (you may end up simply handing over title and then letting the lender sell the house).

Disadvantages to a deed in lieu. There are several downfalls to a deed in lieu. As with short sales, you probably cannot get a deed in lieu if you have second or third mortgages, home equity loans, or tax liens against your property.

In addition, getting a lender to accept a deed in lieu of foreclosure is difficult these days. Many lenders want cash, not real estate -- especially if they own hundreds of other foreclosed properties. On the other hand, the bank might think it better to accept a deed in lieu rather than incur foreclosure expenses.

Beware of tax consequences. A Deed in Lieu of Foreclosure may generate an unwelcome surprise: Taxable income based on the amount the sale proceeds are short of what you owe (again, called the "deficiency"). The IRS treats forgiven debt as taxable income, subject to regular income tax. The good news is that there are some exceptions for the years 2007 to 2009. See your tax professional for more information.

Please feel free to Contact us if you would like additional information.

At Cristiano & Lillard, we represent clients in the cities of Temecula, Covina, Canyon Lake, Glendora, Hemet, Lake Elsinore, La Verne, Murrieta, Pomona, San Dimas and West Covina, and in the following counties: Los Angeles County, Riverside County and San Bernardino County.