Deed in lieu’ can ease foreclosure

March 27, 2009


Q: My sister is having severe financial problems and hasn’t made her mortgage payments in several months. Her lender wants to foreclose, but has given the option of signing a “deed in lieu of foreclosure,” which would allow the lender to take the property back without putting her through the foreclosure process. Should she sign one?

A: If the lender won’t help her save her home by restructuring the loan, she would be better off signing a deed in lieu than forcing the lender to formally foreclose. When a borrower signs such a deed, he or she voluntarily turns over control of the property to the lender. Although defaulting on the loan will hurt her credit score, it wouldn’t do nearly the damage of a forced foreclosure. Agreeing to sign the deed would also allow your sister and the bank to avoid the time and money involved in formal court proceedings.

Q: I live in a large townhome development and serve on the homeowners association’s board of directors as a volunteer. I’ve talked with some of the other directors about having the association pay us a modest fee for our services. Can board members be paid for their time? If not, can I take a deduction for the time I volunteer to the HOA on my tax return?

A: The Internal Revenue Service will not allow you to take a deduction for the time “volunteering” on your association’s board. You may be able to deduct some of your unreimbursed costs in running the HOA — such as printing fliers about upcoming meetings from your own computer — but it probably wouldn’t yield much in tax savings, and may even flag you for an audit.

Starting to get paid for the hours you and other directors spend to oversee the association is probably OK, provided that the bylaws of your HOA allow it. If the bylaws don’t currently permit it, you will likely need to put the idea up for a vote that must be approved by a majority of all the homeowners in your association.

Q: I lost my job in January and started collecting unemployment benefits in the first week of February. Will the fact that I am getting unemployment checks hurt my credit score?

A: No. Credit bureaus don’t keep stuff such as unemployment benefits or disability payments on their records, which means the fact that you are getting jobless benefits will not adversely impact your credit score.


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