One option in foreclosure, known as “deed in lieu of foreclosure” gives borrowers a quick way out of a foreclosure lawsuit.  By agreeing to give up ownership in your home to your lender without a legal fight, you should be able to avoid owing any money if your house sells for less than your mortgage balance at auction.

When a home goes into foreclosure, in most states the lender must file a lawsuit (judicial foreclosure states).  The foreclosure lawsuit ends with a judgment of foreclosure and the house is then sold by the court at a public auction.  By fighting the foreclosure suit, you may be able to stay in your house a few extra months, but you might end up owing money in the end.  If you have little or no equity in your house (due to 95 or 100% financing) it may be just as well to simply give your house back to the lender rather than dragging out your foreclosure.  Under a typical settlement offering a deed in lieu of foreclosure, you would be relieved of any liability for the deficiency (amount the house sells for at auction below the mortgage balance).  For example, if you owe $200,000 and the auction only brings $180,000 you would be personally on the hook for the $20,000 (deficiency).  In some states, your wages could be attached or you may even be forced into bankruptcy if you are uable to pay the deficiency.  By signing over your deed to the lender you can usually make a settlement that will relieve you of any liability from a deficiency at auction.  Of course, you need an attorney to help you with this.  We recommend Pre Paid Legal, which makes available attorneys for only $26 per month.

Of course, if you have substantial equity, your best option would be to sell the house yourself prior to a public auction.  

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James L. Paris
Editor-In-Chief ChristianMoney.com 
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