Short Sales v. Deed in Lieu of Foreclosure

A short sale is when a home is sold for less than the mortgage amount and the remaining loan is usually forgiven. However, most lenders have recourse language in the mortgage, which entitles the bank to go after the borrower personally. Even though the bank gets a percentage of its money in a short sale, they still have the right to personally seek borrowers for the difference and costs. Short sales can also have a very damaging effect on a borrower’s credit.

A Deed in Lieu of foreclosure allows borrowers to simply deed over the property to the lender in exchange for the bank promising not to foreclose. It saves the borrowers from the foreclosure mark on their credit. The foreclosure process is lengthy and costly and has a tremendously negative impact on the borrower’s credit.

A Deed in Lieu is better than foreclosure for both the lender and the borrower because it reduces legal costs and causes less damage to the borrower’s credit . Many banks are beginning to offer this program with restrictions. Be sure to check if your bank has this program.

Written by Allison I. Scollar |
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View LinkedIn Profile for Allison: As head of Guzov Ofsink's real estate practice, Allison Scollar handles all aspects of real estate transactions. She represents individuals as well as businesses and banks in a wide variety of real estate and corporate transactions, including the sale and acquisition of New York residential real estate, commercial financing, commercial leasing, and preparing and filing Offering Plans. Having represented many developers on commercial to residential conversions, Allison is able to guide clients every step of the way – from acquiring development sites through the Attorney General review process – to ensure proper and timely filing. She also represents individuals with purchases and sales of homes. “While clients may be new to real estate transactions, we've been through the range of them many times and can tell them what they need to do and what to expect. They can always reach us with any questions, and they find that very reassuring.” Education St. Johns Law School, J.D. New York University, B.A. Admissions State of New York U.S. Southern District of New York