Deed in Lieu of Foreclosure in Texas: Can It Save Your Credit?

If you can't keep up with the mortgage and don't see a way out, it can feel like foreclosure is the only ending. It isn't. A deed in lieu of foreclosure is one of several alternatives, and it's worth understanding before a sale date gets posted.

What a deed in lieu is

You voluntarily sign the house over to your lender, and in exchange the lender agrees not to foreclose. The lender has to agree. It's an application, not a right, and many lenders want to see that you tried to sell the house first.

How it compares to foreclosure

• It's usually less damaging to your credit than a completed foreclosure, though it still shows up on your report.
• It ends things quietly, without a public foreclosure sale.
• You may be able to negotiate a move-out date, and sometimes relocation help.

The question you must ask: what about the rest of the debt?

If you owe more than the house is worth, make sure the agreement says in writing that the lender waives any remaining balance (the "deficiency"). In Texas, after a foreclosure, a lender generally has two years to sue for a deficiency. Forgiven debt can also have tax consequences, so ask a CPA.

Other options to compare

• Loan modification or forbearance, if you want to keep the house.
• Selling the house yourself before foreclosure, if there's equity. You keep the difference.
• A short sale, if you owe more than it's worth (see our short sale guide).
• A Subject-To sale, where a buyer brings the loan current and takes over the payments.

If there's any equity in your house, a deed in lieu gives it to the lender for nothing. Selling first almost always leaves you better off. Call or text 832-866-FAST and we'll help you compare all of it. If we're not the answer, we'll tell you.