What is the difference between Deed In Lieu and a Short Sale?

Deed in Lieu  is one the options available to home owners who are struggling to make their mortgage payments.    In the case of Deed in Lieu, owners agree to transfer the title of the property to the lender instead of a lengthy foreclosure process.   Deed in Lieu requires the consent of BOTH the lender and the owners of the property.   This is not an option where the owner can transfer the deed to another person since it requires the lender’s consent. 

However, the lender in this case has to write off the entire loan. Therefore the lender could potentially be reported as income and the owners could be subject to Federal and State taxes which could be substantial.

Also, unlike the Short Sale where the loan could be reported as “paid in full/satisfied”, Deed in Lieu could have negative impact on the owners credit history.   

In contrast however, Short Sale affords the owners an opportunity to sell the property for less money that they owe to the banks without being subject to Federal income taxes.  Most States also don’t require income tax payments on the forgiven debt, but we advise our clients to contact their CAP or Tax professional to be certain of their tax liability.

We advise our home owner contact Department of Housing and Urban Development (HUD) for help with ALL their options.  HUD will assign a counselor to help homeowners reach out to their lender to explore ALL of their options. 

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