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Deed in Lieu of Foreclosure

Why is a Deed in Lieu of Foreclosure sometimes the best option?

A deed in lieu of foreclosure offers you a way to give the bank back the deed (your physical title) to your property in exchange for the end, or avoidance, of the foreclosure law suit that has been filed against you. These are not common options – it is where you give your property back to the senior mortgage holder, generally the first bank that lent you money to buy or build your home.

Why is a Deed in Lieu so hard to obtain?

That is because banks don’t like losing money. The first bank will get the property, but what of the 2nd line of credit or the Home Owners Association? They usually get very little in a deed in lieu scenario and are looking for injections of cash into the deal. Essentially their liens must be released before a deed in lieu of foreclosure can go forward. They will typically not release these liens, and that makes obtaining it, for most home owners, very difficult.

In many instances, the banks are simply unwilling to take the deed – they want some kind of cash payout like what they would find in a short sale scenario. Even then, they may not be willing to accept the deed in exchange for a waiver of deficiency. They may want a no-interest note or other document that secures a right to money over a period of years going forward.

How do I secure a deed in lieu of foreclosure?

It must be applied for, like a loan modification or short sale. It is often given to those who have been the hardest hit by the financial crisis. It is an option that also seem to go to those with only one mortgage on the property and either no HOA or no HOA lien. Additionally, individual investors may have their own requirements for a deed in lieu of foreclosure. Federal National Mortgage Association (“Fannie Mae”) for example requires listing the property for a short sale for 90 – 120 days with no offer prior to seeking a deed in lieu. Individual banks, if they backed the loan on their own, may make their own requirements for a deed in lieu.

If you are interested in applying for a deed in lieu and have been served with a foreclosure lawsuit within the last twenty days, contact my office a call to set up a free initial consultation! If you have had your property listed for a short sale with a realtor and are not getting any offers, a deed in lieu may be something worth looking into in an attempt to mitigate your damages in your Foreclosure suit.