If you are facing foreclosure, you may be not only worried but also feel helpless. Especially if you have missed mortgage payments and have been unable to sell your house at market value, foreclosure may seem inevitable. However, one solution may be a deed In lieu of foreclosure. With this transaction, you transfer all your interest (technically, the “deed”) in your home to the lender to satisfy the loan that is in default in exchange for the lender canceling the loan. This will allow you to avoid foreclosure proceedings, and you may avoid the possibility of a deficiency judgment by the lender. You will also be protected from the public notoriety associated with foreclosure as well as the personal debt associated with the defaulted loan. Experts believe that a deed in lieu looks better on a credit report than a traditional foreclosure or bankruptcy, and it will improve your chances of getting another mortgage loan in the future. Note that if you have second or third mortgages you will probably not be able to get a deed in lieu.

For a deed in lieu to be successful, both the borrower and the lender must enter into the agreement voluntarily and in good faith. You need to make sure the lender agrees in writing to forgive any deficiency— the amount of the loan that isn’t covered by the proceeds of the sale that remains once the house is sold. Most mortgage companies will require you to list your property with a real estate agent and put it on the market for period of time, usually between one and three months. And a deed in lieu of foreclosure must be completed within 90 days of the start of the process.

In order to be eligible for a deed in lieu, the property must be owner-occupied; you cannot perform this transaction on an investment property. The exceptions are if you can verify that your need to vacate the home was not related to the cause of default, such as job loss or transfer, divorce, or death, and the home was not purchased as a rental investment or rented out for more than one year.