Deed in Lieu of Foreclosure – Part 2

I’m Ted Thomas, and today I’ll be discussing the deed in lieu of foreclosure. I’ve been involved with distressed real estate for decades, and my specialty is tax defaulted property and tax lien certificates.

In the last article, we talked about challenges surrounding foreclosure. The topics I’m going to cover today are:

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5 Things You Need to Know About a Deed in Lieu

1.) A Deed in lieu means the borrower and the lender have reached a mutual understanding that the borrower is no longer able to make payments on the property.

2.) A foreclosure will stay on a credit report for as long as 7 years. It will be extremely difficult to buy another home during that time.

3.) Deed in lieu of foreclosure the lender releases the loan. The client owner of the property will turn over the deed to the lender.

4.) Liens or tax judgments on property make it complicated, a secondary lien in which the lender didn’t make may ruin the hope for deed in lieu of foreclosure transaction until you can clear the secondary lien.

5.) If the lender forecloses and there is forgiveness of debt the IRS considers forgiveness as income you’ll likely be required to pay income tax on that transaction

deed in lieu of foreclosure part 2

Can You Give Your House Back to the Bank?

The cavalry is about to arrive, it’s called deed in lieu of foreclosure. It means the borrower who is in trouble is willing to deed the property back to the bank. This action will stop the legal challenge and will stop the legal clock from clicking away and building up more delinquency expenses.

Many foreclosure properties are difficult to sell. They’re difficult because the bank wants all of the money for the loan, and the loan may be more than the value of the property. However, the property owner will be relieved of the mortgage debt.

Relief of debt is a step towards recovery. However, relief of debt in the eyes of the IRS is income.

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Investing in Tax Defaulted Property vs Foreclosure Property

The bank wants all their money for the loan. For a $100,000 property with an $80,000 loan, the foreclosure auction starts at $80,000. I don’t think an investor wants to invest $80,000 for a $100,000 property. The profit margin is too low to spend that much cash to pay off a bank.

Let’s compare that to tax defaulted property. These properties are sold for the back taxes.

foreclosure auction vs tax defaulted property auction

For example, a $100,000 property may have $5,000 due in property taxes, and the auction starts at $5,000. The real estate could be identical to a bank foreclosure property, but the purchase price is completely different.

All 3,000+ counties in the USA, seize tax defaulted properties and resell them to recover the taxes.

When the auction takes place, the county treasurer will extinguish the mortgage or deed of trust loan and start the auction bidding at the delinquent back taxes, which may be only 10 or 20 cents on the dollar of the assessed value.

Conventional thinking says to make a lot of money you need a lot of money, but you don’t need a huge bundle of cash to make a six-figure income when you purchase tax defaulted real estate.


We hope you enjoyed Ted’s lesson, “Deed in Lieu of Foreclosure – Part 2”

A deed in lieu of foreclosure occurs when a property owner, who can no longer make the mortgage payments, deeds the property back to the bank in exchange for debt relief.

This action stops the legal challenge and the accumulation of additional delinquency expenses. However, note that the IRS considers debt forgiveness to be income.

If you missed the first part of this 2-part series, you can go here to read Deed in Lieu of Foreclosure – Part 1

If you’d like to learn how to reap huge rewards from tax delinquent property investing, Ted Thomas provides full support and complete training with home study courses, Q&A webinars, live tutorials, workshops, web classes, and personal coaching with certified coaches.

Get started today by taking advantage of this Free Gift from Ted. Act now, it costs you nothing and will give you a big head start!

deed in lieu of foreclosure part 2 by Ted Thomas

Ted Thomas is America’s Leading Authority on Tax Lien Certificates and Tax Deed Auctions, as well as a publisher and author of more than 30 books. His guidebooks on Real Estate have sold in four corners of the world. He has been teaching people just like you for over 30 years how to buy houses in good neighborhoods for pennies on the dollar. He teaches how to create wealth with minimum risk and easy-to-learn methods.

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The Ted Thomas Difference:
  • Ted is recognized as America’s Tax Lien Certificate & Tax Deed Authority and has been helping people with investing in tat defaulted properties for over 30 years.
  • Ted has built a team of certified coaches that have 70 combined years of auction experience and are available to his students by phone to guide and mentor you to avoid getting overwhelmed or worse, losing money
  • Ted has ironclad PROOF that what he is teaching you does work. With hundreds of successful students providing testimonials and a 4.9 Google rating which is unheard of in this industry.
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