Deed in lieu of foreclosure??????

[Rumor]

Hello all,

I spoke to Countrywide again today after being 3 months behind and they offered us short sale or deed in lieu of foreclosure. I can't believe it because our loan is guaranteed by Fannie Mae so why aren't they trying to help us at all??? I can't believe that it's getting to this!! Can anyone give me some info on deed in lieu of foreclosure?? She said it's better than having a foreclosure on our credit.

Any info at all is appreciated!

[Moe Bedard]

A deed in lieu is better yes, but not a whole lot better. You can possible get them to give you cash for keys to sign a deed in lieu. Negotiating any deficiency is key.

Here is some info for you on short sales and a deed in lieus I wrote a while back:

Real Estate Short Sale | Loan Modification & Home Loan News

A short sale MUST be accepted by your current lender or servicer in order to proceed with the sale of your home. It is considered a privilege and not a right. So, with that said, one must be prepared to provide proof and evidence that they qualify and deserve a short sale by their lender. Getting a lender to approve a short sale is primarily a question of economics. You have to provide hard numbers to show that the amount of money a bank will realize on the short sale is better than the amount it may recoup from foreclosing on the property and selling the property.

Your short sale submission package should include:

1. Hardship Letter - explaining the circumstances that make it impossible for them to pay the full amount of the loan. The seller needs to be able to show true financial hardship. Someone with the assets or the income to pay is unlikely to be considered

2. Proof of employment or unemployment - W-2 forms from employers (or a letter explaining the seller is unemployed).

3. Proof of income - bank statements, two years of tax returns, and other financial documents outlining income and debt obligations. Most lenders will ask if you have an access to a retirement fund, investment fund, 401’s, stocks, and how much is accessible and why if these funds are not accessible has to be provided in a written statement.

4. Comparative Market Analysis or CMA, Broker Price Opinion or BPO (Mini appraisal). The bank will need comparable sales data or a broker’s price opinion showing the current estimated of value of your home. Be very thorough with your analysis with Closed and then Active listings. Closed comparable sales are of course what they are looking for above all, but if you cannot find any sold in the last 3 months in the exact same complex or street or block due to the sluggish market, be very detailed with your analysis and calculate by square footage, age, size, views, frontage and upgrades, amenities etc..

5. Listing Agreement or Proof of Listing and The Listing Agreement in a Short Sale: Any offer is contingent primarily upon the Lender’s approval and secondarily on the buyer’s acceptance. The Listing has to be executed and advertised on the Multiple Listing Service (MLS) prior to sending your package for short sale consideration to the Loss Mitigation Specialist.

Tip: In preparing the package, be careful about discrepancies between the seller’s income and the income used to obtain the loan. A big gap may indicate mortgage fraud, unless employment circumstances have drastically changed


Other Items you want to include in your short sale package:

• Cover Letter
• Authorization to Release Information
• 2 months bank statements
• Supporting Hardship Info – HOA liens, medical/disability statements etc.
• Repair Estimate for the Property
• Contract
• Net Sheet
• First mortgage holder may ask for a payoff amount from the 2nd
• Second mortgage holder may ask for a payoff amount from the 1st
• Lender may ask for an Initial Title Report
• FHA and VA may have their own forms and special requirements as well

Ultimately, a short sale can be understood as a negotiation to recognize a changed environment from when the loan was originally signed. Any offer to buy the property must be evaluated by the lender, who is in a favorable position of being able to determine whether to accept such an agreement.

Because of this, it’s crucially important that you present your property in the best possible light, just as you would in selling your home directly. Never accept the least common denominator as the only solution to the issue. By working hard as an advocate for your own cause, you can make a solid case to the lender that a short sale might be in both parties’ best interest.

Negotiating Deficiency is Key When Attempting a Short Sale:

With a short sale, the lender has three possible ways to handle the deficiency balance, which is the portion of the mortgage debt not covered by the sale of the home. First, the lender can attempt to collect the deficiency balance from the seller after the property has closed. Second, the lender may require the seller to sign an unsecured promissory note for the deficiency balance as a condition of agreeing to the short sale. If the new note is for less than the balance of the original debt, the difference would be considered canceled, or forgiven, debt. Third, the lender may agree to cancel the entire deficiency balance. You must negotiate for the release of both the property lien and the underlying personal debt secured by the note. If you fail to do this, the lender may not forgive the personal debt and it will become a collection.

In short sales, just as in any negotiation, it’s important to put yourself in the lender’s position and try to understand their approach. The decision they make is based upon the opportunity cost of holding onto the property after foreclosure and then determining what to do with the asset. If they believe that the stated property value is low then it will make it more difficult to clear a short sale. Because of this, it’s important to present the property as a potential investment to other buyers, putting your value proposition at the center to generate the highest possible offer. The higher the offer, the more likely your bank will be open to accepting a short sale. It is wise to consult with an Attorney or Real Estate Agent who is familiar with short sale negotiation and has significant experience working with lenders. Keep in mind that Attorney’s fees or Realtor fees come out of the lender’s net proceeds; therefore, you should not have to pay out of your own pocket for an Attorney or Realtor to assist you with the transaction

[Moe Bedard]

Deed in Lieu of Foreclosure | Loan Modification & Home Loan News In cases where a borrower lacks sufficient assets for a deficiency judgment, the lender will often pursue a deed settlement independent of court proceedings. Under certain conditions, a deed in lieu of foreclosure can offer several advantages to the borrower and lender alike. If agreed to by both parties, the lender is then able to assume ownership of the property, creating a more efficient process by limiting court costs and waiting periods involved in standard foreclosure processes. Standard foreclosure procedures can take years to process in court and are further complicated by personal bankruptcy declarations, which are relatively common in such cases. For a borrower facing foreclosure, the deed agreement can relinquish him or her from underlying debt, thus removing the foreclosure record from a credit record and reducing the need for a declaration of personal bankruptcy. Lenders also benefit in terms of improved settlement efficiency, which greatly reduces the time, cost and potential complications that would otherwise be involved in a repossession procedure.

In order for the agreement to be reached, the appraised market value of the property must be less than the outstanding debt from the original agreement, and the property must not be subject to any 3rd party creditor claims or liens. Deeds-in-lieu are often initiated either by personal financial difficulties on the part of the borrower or changes in the macroeconomic environment that shift interest rates and/or underlying home values. Mortgage contracts that rely upon a relatively high monthly payment based upon a variable interest rate (with a limited, initial down payment) are particularly vulnerable to shifts in the economic environment; an interest rate change of just a few percentage points could double a borrower’s monthly payment, under certain circumstances. The recent housing market challenges have reflected a coalescence of these factors, which have made deeds-in-lieu a common instrument for borrowers facing foreclosure.

Technically, to proceed with a deed in lieu both parties must agree to and sign both an Agreement in Lieu of Foreclosure, which outlines the terms of the deed, as well as the deed itself, which transfers legal ownership of the property. In certain situations, a borrower may pay to reduce the debt to ensure they maintain their credit rating. Once the agreements are reached, the lender then classifies the original loan as paid and issues a waiver to deficiency judgment, which would normally go into effect in case sale of the property results in an amount less than the debt. A third party escrow service then executes the agreement, thus releasing both parties from their original contract.

[Rumor]

Is a deed in lieu of foreclosure hard to get approved for in order to proceed...? We're surrounded by short sales and I want to avoid that path all together if possible. What are the steps in speaking to Countrywide about a deed in lieu of foreclosure?

[Moe Bedard]

You can do this on your own but should consult with an attorney experienced in real estate law in your state for the best advice. If you want to do this on your own, it's basically a negotiation to unwind your mortgage contract and walk away.

To proceed with a deed in lieu both parties must agree to and sign both an Agreement in Lieu of Foreclosure, which outlines the terms of the deed, as well as the deed itself, which transfers legal ownership of the property.

If an agreement is reached, the lender then classifies the original loan as paid and issues a waiver to deficiency judgment, which would normally go into effect in case sale of the property results in an amount less than the debt.

A third party escrow service then executes the agreement, thus releasing both parties from their original contract.

And that's it. Getting it approved can be the heard part.......