Deed In Lieu Of Foreclosure

Deed In Lieu Of Foreclosure means voluntarily given deed to the mortgagor as a last ditch effort to stall foreclosure. This only saves the home owner from foreclosure and relieves from all mortgage obligations and still you cannot keep your home. But this is less as damaging as the foreclosure could be.

Deed in Lieu of Foreclosure: A Definition

It is a disposition instrument in which a home owner voluntarily deeds the mortgaged property to the lender in exchange for a release from all obligations under the mortgage.

A home owner undergoing extreme financial hardship decides in agreement with the lender to deed out his or her home in exchange for a full relinquishing of his or her remaining obligations of mortgage. But the lender is at no obligation to accept the deed in lieu. However if the value of the property is at least equal to the over due mortgage value, it can interest lenders to think of bypassing unnecessary time consuming foreclosure procedure.

This procedure acknowledges owner’s default, relinquishing equity and rights to property including approvals and permits, survival of guarantees.

One draw back with deed in lieu of foreclosure is with regard to relinquishing all rights to sales proceeds in excess of over due balance. The home owner is required to forfeit his claim on overages, some times called as surpluses, in the event of the property selling for more than mortgage outstanding. But a lender can not initiate a deficiency judgment in case the property fails to fetch money sufficiently to cover loan balances. Some states prohibit deficiency judgments in a trust sale.

Some times the properties that could not be sold in auctions are also accepted by lenders against deed in lieu by the owners. With the title deeds in the lenders’ names they become the legal owners of the properties.

It is important for the defaulting home owners to know how long a deed in lieu of foreclosure will take to conclude. Once foreclosure is set in motion, you will operate under the due diligence that is guided by definite time frames. So a deed in lieu of foreclosure must complete within three months’ period of its commencement.

Lenders are disadvantaged to accepting the deed in lieu of foreclosures. Junior lien holders are to be seen that they are kept current even by paying as they are not cancelled. Moreover there is always a threat of a subordinate party initiating a foreclosure. Add to it the possibility of an ongoing bankruptcy case that carries the potential of reversing the deed in lieu of foreclosure.

As repossessed properties cost a huge amount to the banks. Most of the banks are facing expenses to the tune of hundreds of thousands every month just servicing these inventories. Further the sales of repossessed properties incur expenses to the chagrin of banks.

A home owner should consult a tax practitioner before deciding on deeding out his home in lieu of foreclosure. Though this is referenced to as a friendly foreclosure, you should make sure of your obligations or the absence of them. Because it is the last thing you would invite in this time of distress. See also...