Short Sale vs. Deed In Lieu Cancellation Of Debt

For people who are facing foreclosure and do not care whether or not they lose their house, there is often a question of short sale vs. deed in lieu cancellation of debt.

While both a short sale and a deed in lieu generally lead to cancellation of debt, the two are sort of opposites. In a short sale, you find a buyer for your house and in exchange for receiving the money from the sale, your lender cancels and satisfies your mortgage. In a deed in lieu of foreclosure, you give your house to your lender and in exchange, your lender cancels and satisfies your mortgage. Your mortgage lender then has to find a buyer for your house to get its' money back.

Of course, there are more differences between a short sale and a deed in lieu other that who finds the buyer.

With a short sale, the money figures are known so that a mortgage lender knows up front what its' loss will be. If there is $100,000 owed on a mortgage and the lender accepts the sales price of $90,000, the lender knows that it will lose $10,000. With a deed in lieu of foreclosure, the lender gets the house, but then has to sell it. There are the costs of house maintenance while the house is on the market and the costs of selling the house when a buyer is found. The lender does not know what these costs will be nor does the lender know how long it will take to sell the house.

With a short sale, there are times that a house lender will ask a borrower to pay the difference between the amount owed on the mortgage and the sales price. With a deed-in-lieu, the lender accepts the house in exchange for canceling and satisfying the mortgage debt.

In some aspects, a short sale and a deed in lieu are similar.

In both cases, a lender has to agree. Mortgage lenders are not required by law to accept and agree to either short sales or deeds in lieu of foreclosure. Most lenders have policies for both types of transactions, but some lenders take a hard line and will not agree to or accept either type of transaction under any conditions.

Also, in both cases, you and your house have to qualify. If there are any tax liens, judgments or other mortgages on your house, then these must be paid before either you or your lender can sell your house. Any legal actions or matters concerning ownership of your house must be cleared up before either you or your mortgage lender can sell your house.

This is general information only and not legal advice. If you need specific information or have any questions of any nature whatsoever, talk with a lawyer licensed in your state.

Stop! Don't blindly chase any option to stop foreclosure. See stop foreclosure options to learn what options you have in your situation. Remember, what works in one person's situation, may or may not work in your situation to stop, avoid, and prevent foreclosure.

For more general information, see Stop Foreclosure - Five Options You Need To Know. For more detailed information see deed in lieu of foreclosure.

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