Foreclosure Prevention:
Deed in Lieu of Foreclosure
What is Deed in Lieu of Foreclosure?
A. Deed in lieu of foreclosure in which you surrender ownership without going through the foreclosure process. The borrowers convey or deed their houses to their lender. If there is a second mortgage or other liens this alternative probably will not work. Foreclosure of a 1st lien wipes out all subsequent liens (except for taxes and some specialized exceptions) but a deed in lieu does not. Thus the lender will be left owning a property subject to other encumbrances, a prospect he probably will not even consider.
Deed in Lieu of Foreclosure - Q & A
Q.Is this better than going into Foreclosure?
A. Deed in lieu of foreclosure offers several advantages to both the borrower and the lender. The principle advantage to the borrower is that it immediately releases him from most or all of the personal indebtedness associated with the defaulted loan. The borrower also avoids the public notoriety of a foreclosure proceeding and may receive more generous terms than he would in a formal foreclosure.
Q: Is Deed in lieu of Foreclosure an option for me?
A: If you want to avoid foreclosure and are not concerned about keeping you house, you may want to consider deeds in lieu of foreclosure.
In order to qualify for Deed in Lieu of Foreclosure the borrower must be legally competent and know what they are doing. They must not be involved in any legal action that may result in the loss of the house, a lien against the house or in bankruptcy. If they are in bankruptcy, then they must get bankruptcy court approval before conveying their house by signing a deed in lieu of foreclosure.
In addition the borrower's house must qualify. There cannot be any other mortgages against the house other than the mortgage that the borrower is trying to satisfy. Also, there cannot be any liens against the borrower such as judgments or unpaid taxes. In most states, these liens, judgments, and unpaid taxes are actually liens against the borrower's house and other property.
Finally, the borrower's mortgage lender must agree and accept the deed in lieu of foreclosure. If both the borrower and the borrower's house qualify, the mortgage lender may accept a deed in lieu of foreclosure because it can save the lender the costs of a full foreclosure action. However, if either the borrower or the borrower's property does not qualify, the mortgage lender will need to go through the foreclosure process because the foreclosure action will give the lender a clear title to the property, free of claims against the property.
Borrowers must realize that mortgage lenders are not required to accept deeds in lieu of foreclosure. A borrower cannot legally make a lender take a property such as a house if the lender doesn't want to take it. And this is true even if both the borrower and his house qualify. A lender can have a good reason such as the borrower owing more money than the house is worth or the lender may not have any reason at all for not taking the house.
Q: When does foreclosure begin?
A: Lenders will initiate foreclosure proceedings when homeowners become delinquent in their mortgage obligations, usually after three payments are missed. The lender will then notify the buyer in writing that he or she is in default. The lender can request a trustee's sale or a judicial foreclosure, in which the property is sold at public auction.
A borrower can cure the default by paying the overdue amount and the pending payment after the notice of default is recorded, usually no later than a few days before the property's sale.
Some sales allow the successful bidder to take possession immediately. If the former owner refuses to vacate the premises, the court can issue an unlawful detainer that allows the sheriff to come out and evict them.
Borrowers should do everything they can to avoid foreclosure. It is one of the most damaging events that can occur in an individual's credit history.
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