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Some credit authorities suggest that turning in your deed in lieu of foreclosure is the best option if you have ruled out a loan modification and forbearance. If you are not able to get caught up with your outstanding mortgage balance or negotiate a viable solution with your mortgage lender, giving back the rights to your home may be the next step. Selling your home in a short sale and giving the lender what is called a "deed in lieu of foreclosure" are recommended choices for certain unique situations.
The deed in lieu may be used to mitigate some of the adverse reactions of a foreclosure. For example, if you know a foreclosure is eminent early on, then it could potential limit the negative credit implications from foreclosure, because typically home loan defaults take at least 120 days. It may or may already have a derogatory affect on your credit report, depending on how your lawyer negotiated the settlement and foreclosure.
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