07/31/2009 05:12 am ET Updated May 25, 2011

Deed-In-Lieu Vs. Foreclosure: A Couple Has No Option But To Hand Over The Keys

This is Dispatches from the Displaced, where we share the stories of homeowners hit hard by the housing crisis. Foreclosure is both emotionally and financially devastating -- it's a black mark, like bankruptcy, that remains on a credit report for seven years. We've heard from people across the US who have tried to avoid foreclosure through short sales and loan modifications, but some homeowners who haven't had any luck with either turn to another alternative: a Deed in Lieu of foreclosure.

Essentially, in a deed in lieu of foreclosure, a homeowner who is unable to make their mortgage payments hands over their property to the lender instead of going through foreclosure proceedings.

Jenny Kakasuleff and Brandon Rogers, a couple from Indiana, ended up pursuing a deed in lieu when it became clear that negotiations with their lender were going nowhere fast. Although they had received two short sale offers for their home, the bank wouldn't accept them, and instead of going into foreclosure, Jenny and Brandon decided to provide a deed in lieu and hand over the keys:

My husband and I bought our first home in 2005 -- we were 24 and 26 years old at the time -- and I was selling real estate (prior to completing my degree). Our mortgage increased from $900 to $1100 in 2008 due to property tax increases, which just so happened to be when our income took a hit.

When it became clear we could no longer afford our home, we tried to put it on the market to sell it, but it was no longer worth what we owed. After allowing the payment to go for a few months (the bank would only consider a short-sale if we were delinquent), we managed to convince the bank to consider a short-sale. We received two offers for our home -- as a former real estate professional, they were fair offers, not unlike what the bank could receive if they foreclosed on the property and attempted to sell it -- yet the bank denied both.

We wish that they would have worked with us on refinancing, or bringing down our payment, or even on accepting an offer. They did not accept the offers, in my opinion, because we were insured through FHA, so why take less than the home was worth, when the bank can just foreclose and receive any difference they are unable to get through the sale from the government?

They don't care that we'll never be able to buy a house again, or that we tried to do right by them. We have now applied to give them a deed in lieu of foreclosure--an option that we are told is not as bad as a real foreclosure. We'll see what happens.

I understand that lots of people got into homes they couldn't afford; but what about people like us? We could afford the home when we bought it, but we came across tough times and property taxes raised our payment. We tried to do right by the bank and dispense with the home when it was clear we could no longer afford it.

"At this point," Jenny said, "we are waiting for the bank to accept the deed, and we have reason to believe they will."

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