A friendly foreclosure, by definition, is another term for a deed-in-lieu of foreclosure. This is a process where the homeowner or property owner voluntarily returns the property to the lender, allowing both to avoid the long and drawn-out process of a foreclosure.
This option requires approval from the lender, and the homeowner has to leave the property.
There are a number of benefits to using a friendly foreclosure. In many cases, the lender will agree to forego any right to a deficiency judgement, which would require you as the borrower to pay any balance left if selling the property does not satisfy the mortgage. A friendly foreclosure is also much less damaging to your credit score, and it it incurs none of the time, hassle, and expense of dealing with a full foreclosure.
However, a friendly foreclosure is often still reported to the credit bureaus (as a “deed-in-lieu of foreclosure”) and so your credit is not left in as good condition as it could be. It also causes you to lose your home.
Lenders like friendly foreclosure because they are easy for the lender. They save time and money, and also reduce the chance in their mind — and this is always present in their thinking, even if your personal character is unimpeachable — that you will engage in any “borrower’s revenge” before you are evicted by the sheriff, such as defacing the property or stripping out metal for sale.
At the same time friendly foreclosures can be very hard or impossible to do if there is more than one loan against the property. A second lender will usually not accept an outcome that delivers title to the primary lender, as it often means the second lender will lose all their money. The main lender, on the other hand, often prefers a foreclosure if there are multiple lenders as the process cleans the property title.
If you’ve gotten behind on your mortgage, a friendly foreclosure may be an option. However, you should first try and talk with your lender about alternative payment options. In some cases, especially if it was an emergency keeping you from making payments, they may be willing to devise an alternate payment plan to bring the mortgage current. In order to set up a friendly foreclosure, you will likely need the assistance of an attorney.
If you would prefer to stay in your home, then contact us. We have a great deal of experience connecting homeowners in a tough position with alternative lenders who will take over the mortgage as we restore you back to good credit health.