I am a homeowner.  We attempted to sell our house as a short sale and after three months of negotiations, our buyers walked away.  Our lender has offered us a deed in lieu of foreclosure.  My husband is active duty, and I need to fully understand the effect on credit, and what this may mean for us.  

The lender is Navy Federal, and I know that they participate with HAFA.  Does the offer that they made mean that this will for sure be a HAFA deed in lieu of foreclosure?  Does that mean that it will not effect our credit?  How do we ensure that they forgive the balance on the loan- do they always do that with a DILF, or do we negotiate for that?  How long is the process?  And do we have to actually go through a qualification process again, or can we just complete it now that they have offered it in writing?  So confused and frustrated.  My husband is deployed and we've been paying double mortgage payments since April.  Thanks in advance for the advice.

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Deed in Lieu of Foreclosure is the same as a Foreclosure.  The only difference is that you give the bank your keys willingly.  You need to do a short sale with a good realtor that can negotiate the deal with the bank to for go any deficiencies you have on the loan(s).  The sooner the better.

Thanks for the reply.  I've read conflicting things on how much damage a DILF will do to your credit.  We are not in default on our loan, and we only have one mortgage on this house.  We requested PCS orders hardship for our short sale, and the investor, Freddie Mac, said we do not qualify because in 2010 we rented it out to avoid default.  They also said that we did not qualify (at that time in June) for a financial hardship, yet the bank, Navy Federal, has offered us a DILF.  

I guess I'm confused as to why they'd offer it in the first place if they originally said we don't qualify for a short sale.  We've been paying double mortgage payments since April, and cannot start over with another realtor because, again, they say that we do not qualify for a short sale.  So, why put ourselves through the same process for months when they will only deny it?  Would the fact that it has been vacant for awhile help?

Again, I appreciate your response, just trying to understand the process since I'm a homeowner, not a realtor and this is all new to me.

What do you mean three months of negotiations?  Did/Do you have a HAFA SSA or SSN in place?

Initially, we had a real estate agent and a buyer, and it took three months from the offer to the final decision from Freddie Mac to say that we did not qualify for a short sale based on our request for a PCS orders hardship (see above reasoning) or a financial hardship.  Neither made sense to me, as my husband is active duty with orders, as well as having two mortgages, one income and no tenants.  Regardless, that process took three months, and the buyers were no longer willing to wait, so they backed out.  Freddie Mac had JUST agreed to let us do the short sale if we agreed to pay off the balance of the loan with the offer that was submitted, but since the buyers walked away, obviously, now we have no offer, but the bank has told us they will do a deed in lieu of foreclosure.  I don't know the difference in a regular DILF and a HAFA DILF, or whether since NFCU participates in HAFA, if that automatically means we would do a HAFA DILF if we proceeded.

You said Freddie Mac. That is not the fed HAFA. They have their own with its own rules, so be careful what documents you reference. Fannie Mae is the same way - not real HAFA, both invented their own but call them HAFA.

The requirements in Section 11.2, Chapter IV of the Handbook related to credit bureau
reporting of HAFA transactions are amended as follows:
 If the real estate is sold for less than the full balance owed and the deficiency
balance is forgiven, report the following Base Segment fields as specified:
Account Status Code = 13 (Paid or closed account/zero balance) or 65 (Account
paid in full/a foreclosure was started), as applicable.

https://www.hmpadmin.com//portal/programs/docs/hamp_servicer/sd1202...

Thanks for all of the info- that does help.  I feel like we're in a weird category of people in that we are not delinquent, but being offered the DILF.  So, not sure if that effects credit differently either, and getting ahold of anyone at NFCU to discuss how this works has been difficult.  You'd think if they offered it, they'd be willing to talk about it!  I appreciate all of the info, thanks!

Darlene, read Kevin's links. Of coure, there will be a substantial credit hit with a DIL, Plan on a substantial one. it just may be worse if you weren't making payments. You are being offered the DIL b/c that is the only alternative other than a short sale.

Seller contributions aren't allowed on a Freddie Mac short sale, so I don't understand why you would be asked to pay the balance now.

It also sounds like the lender just handed you DIL paperwork (not that you were approved for it).DIL acceptance is still up to Freddie Mac, not the servicer of the loan.

The problem sounds like in an attempt to remain current you didn't qualify for the investor criteria for the short sale, as your PCS orders were likely too old. A DIL may not be accepted by Freddie Mac by being current.

You should consult with a real estate attorney for DIL assistance.  Good luck!

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