Should I Do a Deed in Lieu of Foreclosure or Short Sale With Bank of America? – Pat

“Dear Andy,

We originally had Countrywide Mortgage provider 2005 ( a fannie mae loan), we were then one day just notified that our new mortgage holder was Bank of America. We have been paying a PMI of around $220.00. In September of last year we filed for a short sale and were approvedin Feb, three months later now they say that they will not relist the property and we need to either move forward with a deed in lieu or they will forclose.

Is a deed in lieu really that much better then a forclosure on your credit? And would we be stuck paying the taxes on the difference in price as taxable income ? Deed in Lieu or forclose?


Dear Pat,

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It sounds like the short sale fell apart. Was it because the Buyer walked? Or because BOA wanted more money than the buyer was offering? If the lender feels that they can get more money than the offer to purchase is, they will typically either foreclose or offer to do a deed-in-lieu of foreclosure.

You may be able to relist the property and attempt to find a buyer that is willing to offer the amount BOA needs to allow the short sale. It’s probably not worth it at this point though, if they are offering you a deed-in-lieu of foreclosure. Short sale and deed-in-lieu of foreclosure will both have about the same impact on your credit and you don’t have to worry about coordinating with real estate agents and buyers, just the lender.

The difference between giving the home back through deed-in-lieu and letting it go to foreclosure can be substantial. The number one benefit to a deed-in-lieu will be your ability to buy another home in the future. With a deed-in-lieu you may be eligible for another loan in 2-3 years. With a foreclosure, you may be looking at 5-7 years. A deed-in-lieu will typically have a much softer blow on your credit rating than a foreclosure would, and if your credit rating is of concern, then go with the deed-in lieu if they are offering it. One last benefit to the deed-in-lieu is that you may be eligible for certain programs that BOA offers, such as “cash for keys”, that can put some money in your pocket as long as you vacate the home by a certain deadline, and also leave the home “broom clean”. I’ve seen “cash for keys” programs offer up to $3k as a benefit, so it could certainly be worth it.

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The only benefit I can think of to letting the home go to foreclosure would be that you may be allowed more time to stay in the home before being forced to move. If you’re not making mortgage payments it could give you a chance to save that money and look for another place to live. Sure, the foreclosure can have devastating effects on your credit, but only you can answer the question of whether it’s worth it or not.

Good luck and please keep us posted with your progress in the comment section below. We’re always here if you have any additional questions.

Andy is a licensed real estate broker in Massachusetts and is the founder of Northeast Properties in Norton, Massachusetts. His brokerage is designed to help homeowners in today’s difficult real estate market, specializing in short sales. Andy speaks with Massachusetts homeowners every day, helping them to address their questions or issues with short sale or loan modification. He enjoys helping consumers arrive at the correct solution to their problem, and believes that the only way to correctly do that is by presenting them with all of their options in an un-biased manner.

If you have a mortgage, short sale, real estate, or loan modification question you’d like to ask just use the online form. I’m happy to help you totally for free.

Broker/Owner of Northeast Properties – real estate brokerage
President/Owner of Northeast Settlement Group – performance based debt relief
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