As foreclosure defense attorneys representing clients across Illinois, we often speak with homeowners who are overwhelmed by the possibility of losing their homes. When mortgage payments become unmanageable and foreclosure seems inevitable, one legal option to consider is a deed in lieu of foreclosure.
This path allows homeowners to voluntarily transfer ownership of their property back to the lender, avoiding a full foreclosure proceeding. But while this option can bring relief, it also comes with important legal and financial considerations.
A deed in lieu of foreclosure may seem simple on the surface, but it’s not always the right answer for every homeowner. Illinois is a judicial foreclosure state, meaning lenders must file a lawsuit in court to foreclose on a property. This process can be lengthy and stressful.
Some lenders are open to accepting a deed in lieu as a way to avoid litigation and reduce costs, but only under certain conditions. As legal advocates, we evaluate whether this approach benefits you and protects your interests under Illinois foreclosure laws, including provisions under the Illinois Mortgage Foreclosure Law (735 ILCS 5/15-1101 et seq.).
How A Deed In Lieu Works In Illinois
In a deed in lieu of foreclosure, you sign over your interest in the property to the lender, and in return, the lender agrees to release you from further mortgage obligations. This can stop foreclosure proceedings and may limit damage to your credit when compared to a foreclosure judgment. However, lenders typically require that:
- There are no other liens or junior mortgages on the property
- The home is in reasonably good condition
- You submit a written request and sign documentation willingly
Once the transaction is complete, the lender takes possession of the home and may forgive any remaining mortgage balance, but that’s not guaranteed. You must confirm in writing that the lender will waive the deficiency—any remaining amount you still owe after the home is sold—otherwise, you could still be liable for the difference.
Potential Benefits For Illinois Homeowners
A deed in lieu can:
- Help avoid public foreclosure proceedings
- Reduce attorney’s fees and court costs
- Stop collections and foreclosure litigation
- Offer a faster resolution to your mortgage problem
- Allow for the negotiation of relocation assistance
But it’s important to understand that the lender is not obligated to accept your offer. They may reject it and proceed with foreclosure instead.
What To Watch Out For
We always review each deed in lieu agreement to ensure our clients are fully released from liability. Without clear language in the agreement, the lender could pursue a deficiency judgment after taking possession. Under Illinois law (735 ILCS 5/15-1508(e)), courts may confirm a sale and award a deficiency judgment if the proceeds are less than the mortgage debt. That’s why proper legal review is essential before signing anything.
Deed In Lieu Of Foreclosure Frequently Asked Questions
What Is The Main Difference Between A Deed In Lieu And Foreclosure?
A deed in lieu is a voluntary agreement where the homeowner transfers the property to the lender without going through court. Foreclosure is a legal process initiated by the lender to force the sale of the home through a lawsuit. A deed in lieu is generally faster and more private.
Will A Deed In Lieu Hurt My Credit?
Yes, but usually less than a foreclosure. A deed in lieu will still appear on your credit report and may lower your score, but many lenders view it more favorably than a full foreclosure.
Can I Be Sued After Doing A Deed In Lieu Of Foreclosure?
If your agreement with the lender does not include a written waiver of the deficiency, you may still be sued for any remaining mortgage balance. Always ensure the lender agrees in writing to forgive the debt.
Will I Owe Taxes After Completing A Deed In Lieu?
Possibly. If the lender forgives part of your mortgage debt, the IRS may treat that forgiven amount as taxable income. However, exceptions may apply under the Mortgage Forgiveness Debt Relief Act. Speak with a tax advisor for personalized guidance.
Can A Lender Refuse To Accept A Deed In Lieu Of Foreclosure?
Yes. Lenders often evaluate whether accepting the property is in their financial interest. If there are multiple liens or the home is damaged, they may choose to foreclose instead.
What Happens If My Home Has A Second Mortgage Or Lien?
Most lenders will not accept a deed in lieu if there are junior liens on the property. The presence of a second mortgage, tax lien, or judgment complicates the process and may lead the lender to reject the offer.
Do I Need To Vacate The Property Before Doing A Deed In Lieu?
In many cases, yes. Some lenders require the home to be vacant before completing the deed in lieu process. Others may allow you to stay temporarily or offer relocation assistance. It depends on the terms negotiated.
How Long Does The Deed In Lieu Process Take In Illinois?
The process can take several weeks to a few months, depending on the lender’s requirements and your situation. Working with an attorney can help avoid delays and ensure you meet all conditions.
Is A Short Sale Better Than A Deed In Lieu?
A short sale may be better if you can find a buyer and want to minimize credit damage. However, a deed in lieu can be quicker and simpler if you cannot sell the home. Both options should be discussed with your attorney.
Can I Negotiate Moving Assistance With A Deed In Lieu?
Yes. Some lenders offer “cash for keys” agreements, which provide relocation funds in exchange for you leaving the home in good condition. This must be negotiated as part of the agreement.
Call Our Chicago Deed in Lieu of Foreclosure Attorney For A Free Consultation
Contact our Naperville Deed in Lieu of Foreclosure attorney at Covert Marrero Covert, LLP by calling (630) 717-2783 to schedule a consultation. Our foreclosure defense attorneys serve clients throughout Warrenville, Schaumburg, Naperville, and Joliet, and we work with homeowners across the entire Chicagoland metro.
