If foreclosure is looming and you are unable to sell your house, you should consider a ‘Deed in Lieu of Foreclosure’. Basically you are giving the house back to the lender, rather than making them go through with the foreclosure. A foreclosure on your credit report is extremely damaging and will make it nearly impossible for you to buy another home for at least 3-5 years.

If you successfully negotiate a deed in lieu with your lender, it SHOULD keep the foreclosure off your credit report. You must confirm with your lender specifically if that is the case and, if necessary, try to negotiate it as part of the deal. It is considerably less expensive for the lender to simply have you deed them back the house, rather than pay the attorneys to complete all the papers to actually foreclose and go to the Sheriff?s Sale. Tell them you will move out and leave the house clean and in good shape, but you do NOT want the foreclosure on your credit. Insist that they put this in writing, but if they will only tell you verbally then be sure to send THEM a letter, certified mail return receipt requested. Simply write, ‘Dear John, this letter is to confirm our verbal agreement on xx/yy/zz that if I agree to a deed in lieu of foreclosure, you agree the foreclosure will not appear on my credit report.’

However, A Deed in Lieu may not be your first, best option. If you have significant equity, you should work diligently to find a way to sell it to a private party or an investor and recover the equity! If you agree to a Deed in Lieu or the lender completes the foreclosure process, any equity you have is lost. If you have no equity and are just ready to deed the home, it is always better to deed it to the lender than an investor. By deeding it back to the lender, you are terminating the loan agreement and walking away. If you deed it to an investor, the loan is still in force and in your name; if the investor fails to follow through on their promise to make the payments, the foreclosure could proceed, and you would be powerless to stop it. Again, be sure your investor is established and has adequate financial resources to make the payments on your home.

There are dozens of other ways to prevent foreclosure, and most people should not have to resort to a deed in lieu, provided that they address the problem as early as possible and communicate well with their lender. But if all else fails, keeping the foreclosure off your credit is better than nothing.