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Deed in Lieu Effect on Credit Score!

Deeds in lieu of foreclosure (DIL) share a common feature with short sales and actual foreclosures of homes – they’re a means for homeowners to get out from under a financially hurtful mortgage burden.


A DIL will definitely affect your credit score. Though the amount varies, the drop can be as much as 250 points. Current FICO (Fair Isaac Credit Organization) scores range from 300 to 850 points. For example, a credit score of 700 that declines to 500 after a DIL indicates bad credit and would cause difficulty in qualifying for reasonable loan interest rates.


DILs are fairly simple to execute once a homeowner and the lender agree on transferring of the home’s deed. The owner hands over her deed and house keys and is expected to vacate the home as son as possible; the lender then cancels any remaining debt obligation. A negative credit entry is then generated, affecting the owner’s credit record.

Time Frame

DILs can remain on an owner’s credit record for up to seven years. Typically, it is very difficult to get a new home loan for at least two to three years after, even for federally backed loans insured by the FHA (Federal Housing Administration). According to current FHA lending guidelines, two years must pass before an application for a new mortgage can be considered.


You might also be responsible for certain taxes after a DIL, including deed or title transfer taxes.

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