New Jersey consumers who are facing foreclosure may wonder what their options might be. Some may consider a deed in lieu of foreclosure. There are both advantages and disadvantages to this option.
Deeds in lieu of foreclosure are conveyances by which homeowners who are unable to make their mortgage payments to their lenders can get out from under the obligations. What happens is the mortgage company assumes the title to the property which is subject to any liens or pre-existing claims to the property.
Once the deed in lieu is accepted, the borrower’s liability, as well as that of any cosigners to the debt, ends. One exception would be if there was a contemporaneous agreement that contradicts the deed in lieu.
In general, there are more advantages of a deed in lieu for the lenders than for the property owners. The most obvious advantage is that the lenders now own the property and can immediately put it on the market to recoup any losses. Lenders also get to skip over often costly and prolonged foreclosure proceedings.
What’s the advantage?
The advantage to the indebted consumers is typically limited to being released from the obligation to repay the debt. But consumers can still face financial liabilities related to the deed in lieu transaction. Unless the lenders specifically agree not to seek deficiency judgments in the agreement, they can legally pursue consumers for the amounts of the mortgages that fall short.
There may also be tax implications, as the Internal Revenue Service (IRS) can view the forgiven mortgage amounts as income for the debtors, creating nightmare scenarios when it’s time to file tax returns for the given year.
So what is an indebted consumer’s best option when it comes to getting some relief? Many clients hesitate when it comes to talking about bankruptcy, but under the right circumstances, filing for either Chapter 7 or 13 bankruptcy can offer welcome relief. Consumers can wipe the slate clean and file under Chapter 7. Chapter 13, alternatively, allows homeowner to restructure their mortgage debts and pay them off over a period of a few years. A mortgage modification may provide a fourth option.
An experienced attorney can help you decide which option is best for your particular circumstances.