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What is a Deed in Lieu of Foreclosure?

Discussion in 'Deed in Lieu of Foreclosure - Do You Need Help to ' started by Moe, Sep 23, 2008.

  1. Moe

    Moe Call 1-800-779-4547 Staff Member Loan Safe Mortgage

    For home borrowers ("mortgagors") facing foreclosure, a deed in lieu of foreclosure provides an alternative solution to the standard default process. In particular, the deed grants the lender (the "mortgagee") full rights to the property title to satisfy the conditions of the loan. Such agreements are a common form of mortgage contract settlement. In general, a deed is a right granted by a legal contract based upon mutual agreement; therefore, a deed-in-lieu must be based upon voluntary agreement in good faith.

    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 court and are further complicated by personal bankruptcy declarations, which can be 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.
  2. 12345

    12345 LoanSafe Member

    what if i have a second?
  3. Moe

    Moe Call 1-800-779-4547 Staff Member Loan Safe Mortgage

    I already posted in your thread.............
  4. nana8

    nana8 LoanSafe Member

    Hi everyone-
    Just found this site last night ....was up til 3 this morning reading people's stories. I knew we were not alone in this mess....but hearing real experiences from others helps:).
    I have a question about Deed in Lieu... other than the credit reporting aspect is there an advantage to this?
    I am rooting for those of you still fighting to keep thier homes:D, espically those of you dealing with Countrywide:rolleyes:
  5. shonokin

    shonokin LoanSafe Member

    Hello, I'm starting from scratch here.

    I'm in California and am walking away. I have a 80/20 all towards the purchase of my primary residence. The first is with Countrywide and the second was with CW but was sold to Citimortgage.

    I have to move and selling is just not going to happen. Not even short selling. Looking at all my options and based on the current market for like-homes in my area and after talking to a mortgage attorney I've decided the only thing I can do is walk away. There's no way to sell it.

    After talking to this attorney he said there's a couple of things I need to know how to do. Since I don't have the money to retain his services I need to do the legwork myself but this is what he suggested to me:

    I need to write to CW and notify them of this. In the letter I want to offer a deed in lieu of foreclosure. He says it's likely that because it actually costs time and money for the bank to investigate and make sure there's no other hidden debts that could be tied up in the house that they may not accept. But I'd like to offer it anyway.

    So like I said, I'm starting from scratch here. I'm moving out this week and haven't written to CW or Citi yet.

    I could use some help with knowing just what exactly to say and what address such a letter would go to and to whom it should be addressed. Can someone help me? Thank you, Shonokin
  6. Cathy

    Cathy LoanSafe Member

    I was getting ready to offer the deed in lieu to Countrywide. I was told by a laywer they could come after me later for the debt??? I have been working with CW for months. Same as I have read from so many it is all a big joke. They never even give you the same story. I have written my hardship letter and have defaulted now 3 mo. (I was told by CW if I had not defaulted 3 mo. I could not get help.) Go figure???? I want to keep this home but w/o adjusting this loan back there there is no way. Went from 7.4% up to 10.125%
  7. baileys dad

    baileys dad LoanSafe Member

    Hello Cathy,
    Welcome to the forum.
    You should start your own thread so people, especially Prof. Shays, can comment upon your particular situation. Go up to the top of this column, click "Deed in Lieu..." then hit "new thread"

    Please answer the following questions so you can get some feedback:

    1-What state are you located in?
    2-What are the amounts of the loan(s)?
    3-What is the value of the house?
    4-Do you want to stay in the house?
    5-Was all the money used for purchase purposes or did you take money out for any reason?

    If you wanted to stay, you should google "Home affordable guidelines" and you would find the general requirements. There is a separate CW forum; you might check that for some other people's experiences with them. It sounds as if you really don't need/want a deed-in lieu....
  8. Deforest Cooper

    Deforest Cooper Legal Assistant

    To Shonokin,
    To my understanding you have to have the house on the market for 3 months in order to do a deed in lieu with CW.
    To some degree it is almost not worth it to do a deed in lieu... they make you jump through so many hoops in order to give them the deed back. You have to submit financial paperwork, hardship letters, the house has to be listed for 3 months or more.... just alot of stuff. and the credit impact is really the same as a foreclosure. (From what i hear)
    So really you might just want to stay in the home until the bank foreclose's and then when it gets time for you to exit the home, a company called "Cash for Keys" will give you money for leaving the home and giving it what they call a (Broom Finish" which is basically cleaning the house and not damaging aanything on the way out. Usually a couple thousand or something.
    It's a good exit strategy if you have no money to hire and attorney and the bank is not willing to work with you for a modification. You can stay in the home and save some money then when the time comes you can get some money out of the deal. I don't really see any other options for you.
    Have you already tryed a short sale?
  9. Deforest Cooper

    Deforest Cooper Legal Assistant

    To Cathy,
    I agree with Bailey Dad... it sounds like you might have a chance to keep the house. The Law Office that i work for has a great relationship with CW and from the sounds of it, going from a 10% down to a 7% or less, would not be a problem if you had a valid hardship and a ability to pay for a modified payment.
    - Do you have a job or a source of income?
    - What are the parameters of your situation? Loan amount? Payment? Program? Monthly Outgoing Expenses?

    These are some of the questions that we would need to know in order to see if there is a way to keep the house. 3 months behind is not that bad... depending on what state you are in. What state are you in? If you need some help i can send you some tools that we use here at the law office.
    Let me know if i can be of some help.
  10. GoingInsane

    GoingInsane LoanSafe Member

    so based on all the information I'm reading, and I'm really learning alot, Metlife can't make me do a deed-in-lieu? They need me to agree to it, correct? What about a short sale. Can they make you do a short sale? If the answer is no to both of them then what the he!! are they waiting for to convert my construction loan to permanant? I'm starting to feel like the stars are going to align on my side real soon.
  11. vikki5

    vikki5 LoanSafe Member

    Hello, I need a strong advice regarding if i should proceed with my short sale or consider Deed in Lieu foreclosure. Our short sale was approved Nov 30th and we have til the 5th of December to sign the confirmation or otherwise it will be rescinded. One of the condition states that we must acknowledge that Indymac retains all deficiency rights. My realtor asked the negotiator to waive the banks deficiency rights but we have not heard anything from the bank, I consulter an attorney and he said that the deficiency can be negotiated even after the short sale. PLS I NEED AN ADVIce. SOMEONE HELP ME TO MAKE THE RIght DECISION
  12. we're_still_reviewing

    we're_still_reviewing LoanSafe Member

    I highly doubt that you will get the bank to put anything in writing about the deficiency judgement. I have yet to hear of one do that. You can file for bankruptcy AFTER if they do sue you. That's one way of negotiating it. LOL. But most people don't want to go that route. Why if the bank agreed to a Short Sale do you not want to go that route ? Short Sales and DIL's have the same impact on your credit score. You could always let it go into foreclosure. Not sure if that is something you have considered.

    Best of Luck to you.
  13. davidlg

    davidlg LoanSafe Member

    How long in to the foreclosure can this be used?? 2mths or wait up to 7-8 mths?

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