Using a deed in lieu of foreclosure is becoming a more common solution for homeowners to escape the pain of the foreclosure process. They will not be able to save the home using this method, but it can effect a mutually beneficial solution to the problem with the lender. The homeowners will have to give up title to the property, but this may be a better solution than having it forcefully sold out from under them at a county sheriff sale.

A deed in lieu of foreclosure would not directly affect the foreclosure victims' credit very much at all, which is one of the few drawbacks of using this tactic, along with the fact that the house is not saved in the first place. Their credit report will show the mortgage loan's status as being closed but reflecting the use of a "Deed in Lieu." This is only slightly better than if the credit report just said the loan had been closed due to a full "Foreclosure."

However, the deed in lieu can affect the homeowners' credit history indirectly in a number of positive ways. These should not be overlooked, as they can vastly increase their financial footing just after the foreclosure and for years afterwards.

First, by giving the deed in lieu, the homeowners will end the foreclosure process sooner than if the house is allowed to go through the entire court system until it is sold at the foreclosure auction. That means the foreclosure victims' credit reports will show fewer months of late mortgage payments. Instead of nine months of late payments and then a foreclosure, the credit history may reflect six months and then a deed in lieu. Admittedly, this is only a small consolation, but the credit score may stabilize and start to increase easier with even a few less late payments. In other words, the fewer late payments the homeowners show, the easier it will be to recover.

Also, the deed in lieu can help because, by ending the foreclosure earlier, the foreclosure victims will immediately start getting some distance from the whole process. The deed in lieu can make an end of the ordeal months sooner than watching the home be taken away by the legal mechanisms of foreclosure. The further away in time the homeowners can get from the foreclosure, the less it will affect the decisions of other creditors to loan them money in the future, including buying a new home.

For example, a foreclosure that has just ended two months ago will look very bad to a creditor, and will ensure the applicants receive the highest interest rate, if they can get approved for a loan at all. But a foreclosure that is six months ago, or two years ago, will allow the homeowners to get back on track just that much quicker, and qualify for better loans with lower costs of borrowing, if they decide to finance a purchase.

Therefore, if a deed in lieu is the only option that homeowners left to stop foreclosure, it is probably a good idea to offer it to the bank and just try to move on with their lives. Giving up a house voluntarily is never an easy decision, but it can give the foreclosure victims an escape from the entire process and give them the fresh start and opportunity they need to begin the rough road of financial recovery.

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