Deed in Lieu need lawyer?

[wongfred2000]

Thanks for the site. I feel much better after doing so much research and question about my situation. I am from N. California. I decided to walk away after trying to sell my house for 4 months still no buyers. I want to do deed of lieu. Do I need a lawyer? What can lawyer do for me? Should I talk to bank directly or it would be much easier if l have a lawyer to represent me? How much they usually charge? Any recommendation? How about the ad listed in this web site? I am sorry I have so many question. I really need to do it quick. I don't think I can pay this month mortgage.
Thanks for any help and suggestion!
Fred

[The Professor]

While you can offer your lender a "deed in lieu," the lender must agree to accept it and that is not a common event. There are issues that the lender needs to feel comfortable don't exist. Things like the potential of junior liens (which means the lender won't accept a DIL without obtaining a new title insurance policy.

With the information you've provided, there just isn't sufficient data to ascertain whether a DIL makes sense from a lender's perspective. Answer the following questions and I can give you a better idea:

1. Is the loan on your personal residence?
2. Was the loan created at the time you purchased the property?
3. Are there any other loans or encumbrances on the property that are of a lower priority (2nd loan, judgment, etc.).

Daniel

[wongfred2000]

Dear Professor Shays, Thanks for your reply.
1. Yes it is my personal residence and my only residence
2. The 1st loan is the created at the time you purchased the property and it is with National City.
3. We've the HELOC and it is being refin 2 times. This one with Wellsfargo and this is the one making me worry. I am so worry that Wells won't keep up.
Please let me know if you have any question. I am looking forward to your recommendation.

Thanks
Fred

[The Professor]

Can you provide me with an estimate of:

1. Current fair market value of your home.
2. Balance on your first loan.
3. Balance on your second loan.

The problem you may face is the refinance of the HELOC probably makes it recourse in nature and that could be a big problem.

Daniel

[wongfred2000]

Dear Professor Shays,
According to zillow.com, it is around $990,000. My 1st is $760,000 and my 2nd is $250,000. How can I talk to Wells to see if they can let me go? Thanks for your help.
Fred

[The Professor]

I would be looking at attempting to do a "short sale," seeking the approval of both the first lender and the second lender. If you are successful at finding a purchaser, you may be able to negotiate with the HELOC lender to take the amount that is generated as the result of the sale (even though it won't fully payoff what they are owed in all likelihood), and release you from liability. Since the second is a recourse debt, if the first forecloses you could be liable for the total amount of the second loan.

Wells will not take a DIL, because doing so would effectively mean that they would take over responsibility for the first loan.

Daniel

[wongfred2000]

Dear Professor Shays,
Thanks for your quick respond. Do I need to get approve from both banks before I do the short sale? Do I need to move out before I do the short sale? Do I still need to pay the mortgage during the short period? Should I talk to banks directly and ask for the approval for short sale? Or it will be better to have the lawyer handle it? Thanks a lot for answering so many questions.
Thanks for your help!
Fred

[The Professor]

wongfred2000, I've responded to your questions as follows:

Do I need to get approve from both banks before I do the short sale?
Given your outlined situation relative to the home's value, it looks like the first lender will be fully paid if you find a buyer so their permission is not required. The key is the second lender so I would contact them up front and seek there concurrence that a potential short sale is the way to go.

Do I need to move out before I do the short sale?
No.

Do I still need to pay the mortgage during the short period?
This is a tough call. Given your potential liability on the second for a deficiency, it may be a good idea to continue the payments. But I think more important is looking at your overall financial condition in making this decision. If you don't have assets they can attach, the decision may be to stop making payments.

Should I talk to banks directly and ask for the approval for short sale?
The reality is unless you have a real estate agent the second lender is probably not going to be willing to discuss a short sale beyond general terms (e.g., is it something they would consider).

Or it will be better to have the lawyer handle it?
You are probably better off having a real estate broker skilled in handling short sales working for you to get the property marketed as a short sale and sold as quickly as possible. Use the lawyer to handle the concluding discussions with the second lender when you have a pending sale. What you want is a full release from the second lender when the sale closes. That is where you are going to need a lawyer.


Daniel

[wongfred2000]

Dear Professor Shays,
Thanks for you super quick respond. Thanks a lot. Actually, the house is on market for almost 4 months and still can't sell and that's why I wanted to do DIL. After all your information, I won't do it. I will contact Wellsfargo tomorrow for doing short sale. I just called my agent about the short sale and he is ready to do it. I will also call the 1st for short sale and I want to ask for some help like officially skip couple payments or at least some time for me to do short sale. I really have no $ to pay the 1st. Should I do it?

Thanks a lot for you help. I feel much better now. Now I know what to do. Thanks again. I will keep you post for the result. Thanks

Thanks
Fred

[The Professor]

Given your inability to pay on the first, I would call them and indicate that you are going to try a short sale and have the home listed for that purpose. Hopefully, given that piece of information they will simply wait and delay the initiation of foreclosure (adding additional costs). Best here to be honest and upfront. Know that the second lender, if they are taking less than the amount owed, don't want you to get a dime out of the sale. So it is wise not to play games and be open and transparent in your dealings with any potential purchaser.

Daniel

[wongfred2000]

Dear Professor Shays,
Thanks. Got it. Serious, I just want to move out and start all over again w/ my family. We are so tried for last couple months. I think I will have good sleep tonite. Thanks again. I'll keep you post.
Thanks a lot.
Fred