Deed-in-lieu (DIL) and short sales are on the rise. Amy Daniel, senior vice president of title and close at ServiceLink, answers common questions and explores the benefits these loss mitigation tactics bring.

Q: How do the deed-in-lieu (DIL) and short sale service offerings help borrowers avoid foreclosure?

A: These offerings provide borrowers and lenders with alternative ways to resolve their mortgage debt before the foreclosure process proceeds. When borrowers fall behind on their mortgage payments, loan modification is typically the first option servicers pursue. If this is unsuccessful, a short sale allows borrowers to sell their homes, with the lender recovering a reduced portion of the loan balance. If a short sale isn’t feasible, a DIL can provide a last resort exit for the homeowner before foreclosure. These options offer a faster and more cost-effective path.

Q: Why are they especially relevant today?  

A: Deed-in-lieu and short sales are on the rise, particularly in reverse mortgages, where heirs often return properties. With economic shifts and potential regulatory changes ahead, proactive loss mitigation remains essential. With loan modification and pandemic-era protections expired, servicers and investors need efficient loss mitigation strategies. While loan modifications remain the first line of defense, DIL and short sales can offer viable alternatives when modifications fail, protecting both financial interests and borrower credit.

Especially with foreclosure volumes continuing to rise, up 23 percent from the first six-year over year, the focus on effective loss mitigation strategies has never been greater. Foreclosures are not only costly, but time-consuming, especially in judicial states, making DIL and short sales critical alternatives.

And, these solutions can help servicers help homeowners. In this industry, we’re used to dealing with these transactions daily, but for homeowners, terms like ‘foreclosure,’ or ‘default,’ can bring up a lot of negative emotions. They’re tools to help borrowers see that there are other good options available—whether assisting heirs in handling assets on the reverse mortgage side or working with borrowers who need a way out of homeownership.  

An attempt to work with the borrower in a time of hardship shows willingness to help during a usually stressful process. This can lead to a reputational advantage and potential repeat business for the lender down the road.

Q: What efficiency gains do these alternatives bring to servicers and lenders?

A: By avoiding foreclosure, DIL and short sale transactions offer cost and time saving for all parties involved. Benefits include:

• Lower cost and time savings: Avoiding foreclosure cuts legal fees and holding costs, expediting resolution for servicers.

• Reduced property management: Foreclosed properties often require constant maintenance, including grass cuts and winterization. Short sales and DIL transactions can help minimize these responsibilities.  

Q: What do they offer borrowers?  

A: Not only do DIL agreements and short sale transactions provide significant benefits for servicers and lenders by reducing the costs, timelines, and complexities associated with foreclosure, they also offer meaningful advantages for borrowers.

• Market viability: Short sales are increasing, as homeowners leverage equity in their homes to avoid foreclosure.

• Lesser credit impact: Both DIL and short sale options are generally less damaging to credit than foreclosure, which can stay on credit reports for up to seven years.

• Potential future homebuying: Once a borrower has completed a short sale as an alternative to foreclosure, they may be able to qualify for a new mortgage sooner than if they had gone through a foreclosure.

Q: What should servicers look for in a provider?

ServiceLink streamlines both deed-in-lieu and short sale transactions through comprehensive property and lien assessments, specialized training for servicers, and industry-leading expertise that accelerates these resolutions efficiently.

Our deep industry expertise, highly tenured team, and streamlined processes allow us to execute transactions with precision, ensuring faster resolutions that benefit both servicers and borrowers.

ServiceLink provides servicers with end-to-end solutions to minimize losses and helps them support their borrowers.

To learn more about these solutions, visit here.

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