Grant deed in lieu questions

I have gotten a lot of questions about doing a grant deed in lieu.

Someone asks, can they do a deed in lieu of  foreclosure if the lender doesn't agree to it. The answer is that when you transfer real property, you don't just sign a deed. You have to have the person or organization receive the deed, in an act known as delivery. So you can sign a deed over to your lender, but unless they accept it, you haven't done a deed in lieu of forelclosure. Lender approval is required.

Another person asks, deed in lieu of foreclosure versus foreclosure, what is best? My answer is that a deed in lieu can be better than foreclosure because of two reasons. One, you save the lender costs involved in completing the foreclosure process. So it is cheaper for them and therefore less damaging. And also, you can negotiate when you are doing a deed in lieu. You can negotiate as to how they report the situation on your credit report, and you can negotiate whether or not they agere not to go after you afterwards for any deficiency.

Yet another question I get is can you do a deed in lieu of foreclosure if you have a second mortgage? The answer is no. Generally not. You could conceivably do a deed in lieu of foreclosure to the second mortgage holder. They would only want to do this if you have significant equity already even after accounting for the first and second mortgage. These days, nobody does, so it isn't particularly relevant.

And another question I get often is, what are the IRS tax consequences of deed in lieu? The answer is that there may not be any tax liability if you are technically what is known as insolvent at the time of the deed in lieu. The state income tax situation will vary state to state, but that's the federal tax implications of deed in lieu. Always talk to a tax advisor or a good lawyer though.

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