Deed in Lieu of Foreclosure is a powerful tool when properly used.
Deed in lieu of foreclosure is a legal document which allows Borrowers to transfer all interest of their property to their lender. Individuals facing foreclosure are able to utilize deed in lieu of foreclosure to stop foreclosure proceedings and return their real estate to the bank.
The main advantage to deed in lieu of foreclosure is it allows the Borrower to immediately be released from their mortgage debt. In essence, the Borrower hands over the keys to their lender and walks away from the house. Deed in lieu of foreclosure is relatively quick and less traumatic than the foreclosure process. Additionally, deed in lieu of foreclosure is usually less damaging to the Borrower's credit.
Once the bank agrees to deed in lieu of foreclosure, the lender immediately takes possession of the house. Therefore, the borrower must be prepared to leave the premises prior to signing the final agreement.
Not all lenders will accept deed in lieu of foreclosure. Borrowers facing foreclosure need to contact their lender's Loss Mitigation Department and explain their financial hardship. Typically, bank loss mitigators will first attempt to work with the homeowner to help them keep their home.
Additionally, certain requirements must be met before lenders will consider deed in lieu of foreclosure. Generally, if the borrower owes more on their mortgage note than the fair market value of the property, lenders will not enter into a deed in lieu of foreclosure agreement.
The amount due on the mortgage is secured by the real estate being transferred back to the bank. The bank is usually responsible for the sale of the property unless they offer the homeowner a short sale offer. In this type of real estate transaction, the borrower is given a specific amount of time to sell their home for less than is owed on the mortgage note. The short sale amount must be equal to or greater than current market value of the property.
Deed in lieu of foreclosure is a voluntary agreement between the borrower and lender. A contract must be written and signed by both parties in order for the deed in lieu of foreclosure to be legally binding. This is known as the Parole Evidence Rule, which is a principle of the Common Law of Contracts. The parole evidence rule protects the lender from later claims by the borrower claiming the lender pressured them into the deed in lieu of foreclosure agreement.
In order for property to be eligible for deed in lieu of foreclosure, the house must be owner-occupied. The Borrower cannot vacate the property and leave it empty during deed in lieu of foreclosure negotiations, nor can the real estate be investment property. Additionally, the borrower must be at least 31 days delinquent on their mortgage payments and provide documentation verifying they do not have the financial means to stay in the house.
Published on July 22, 2008 at 11:06 PM