DEED IN LIEU OF FORECLOSURE
There are many options open to a home owner facing financial difficulties that affects the ability to pay his/her mortgage payment. Deed in lieu of foreclosure is one of those options in addition to foreclosure, short sale and bankruptcy.
If a home owner/borrower chooses Deed in lieu of foreclosure, when the home owner can no longer pay mortgage on the property, they would be handing over their rights to the home to the lender. This entails signing over the deed to the property to the lender, who in turn forfeits the mortgage. The lender and the borrower must enter the agreement voluntarily and in good faith.
The Process of foreclosure
After considering your options, you decide to embark on the road to mortgage freedom through a deed in lieu of foreclosure agreement. At this time, you should contact your lender with your decision. They in turn will examine your request, and if they decide that that path is acceptable, they will inform you of their decision.
The lender will draw up the Deed in Lieu of Foreclosure Agreement to be witnessed by two individuals, signed by the grantor (home owner), and of course notarized by a notary public.
Once the Deed has been executed, it must be delivered to the grantee (lender) and also recorded at the court in public records.
Due to the fact that deed in lieu of foreclosure is a complicated process, you’ll need a seasoned attorney to assist you in navigating that procedure. There are certain pitfalls you need to avoid and which the lawyer can help you with. For instance, the lender can still seek for a deficiency judgment even after the deed has been signed. This will give them the authority to take further debt collection actions against you, including filing a lawsuit in order to coerce you to pay the balance of the mortgage debt.
Considerations for Deed in Lieu of Foreclosure
- The home owner/borrower must have undergone a major hardship.
- He/she must have exhausted all other viable options and financial resources.
- The Deed on the property is usually the individual’s previous homestead and not an abandoned or investment property.
- There must not be any other liens on the property.
- The property must have been in the market for 90 to 180 days.
- The property should be left in excellent condition by the borrower.
Deficiency resulting from the Deed is usually overlooked by the lender, and the IRS may consider this as debt forgiveness and therefore will be considered an income. You could then be required to pay taxes on that amount forgiven. This is not always the case, however, it is a problem that the assistance of an attorney will help you to avoid.
There are certain advantages to deed in lieu of foreclosure both for the borrower and the lender:
- The borrower can heave a sigh of relief because the obligations of the property are shifted to the lender.
- By opting for deed in lieu of foreclosure, the borrower is saved the hassles associated with foreclosure.
- The lender and borrower save money and time on legal fees and bureaucracy associated with foreclosure.
- There is less public visibility with deed in lieu of foreclosure.
However, the borrower is faced with the challenges of surrendering his/her home and looking for a new home.
To make the rigorous process easier, let an attorney assist you to avoid the pitfalls and mistakes that are easy to make throughout this process.