Why a Deed in Lieu of a Foreclosure ?
A deed in lieu of a foreclosure may be an alternative to a full-blown foreclosure for some homeowners who are upside down when it comes to their home loan.
The process involves a home owners executing a deed and basically giving-back ownership (the title) back to the lender, the mortgage holder.
Whether or not a deed in lieu of a foreclosure is an option usually depends on several factors, first of all the lender (your mortgage holder) must be in agreement to accepting title.
The agreement for a lender to accept title could depend on sever factors, normally:
1. Whether or not their are any junior liens, meaning are their any other loans after the first trust-deed, maybe a second or their trust deed or even a home equity line of credit.
Give back (or executing a deed-in-lieu) with additional loans means your giving ALL the loan, liens, etc. The excess baggage travels with the property. As an example:
Current Home Value: $250,000
$ 225,000 1st Loan
$100,000 2nd Loan
$ 325,000 Total Loans
Lender has an immediate loss of $75,000 by accepting a deed-in-lieu. In addition to additional lien there could also be other applicable costs and or expenses. It’s not uncommon to find a homeowner who is also in arrears with other debts.
2. The owner could also have construction or personal liens on the property, which again become part of the excess baggage transferring to the lender.
3. If title is transferred the lender then must process the property and become the seller. Many lenders are more likely to work with a home seller on a short sale and not have the burden of additional property inventory and selling hassles.
Many of the lenders we’ve worked with recently have requested the upside down homeowner first try to sell the property on a short-sale for a period of 3-6 months before they’ll consider a deed-in-lieu.
But who knows for sure, if you’re interested contact your lender directly. You also need to confirm acceptance of your deed will cancel your complete loan indebtedness.
If you enjoyed today’s quick real estate class, I’d love to hear from you!