If you run late on mortgage payment and you want to avoid a foreclosure, one option that you could go for is the deed in lieu of foreclosure. This is a mortgage transaction that benefits the borrower and lender by avoiding the lengthy foreclosure process. It occurs when the homeowner deeds the collateral property, which is essentially the home, back to the lender in exchange for a release of the mortgage obligation. This can only happen when both the mortgagor and lender enter into an agreement voluntarily.
How the deed in lieu of foreclosure process is conducted?
Both the lender and borrower can initiate the deed in lieu of foreclosure process. Some lenders offer it in the begin stages of the foreclosure process in order to avoid spending a lot of money and time. When the borrow is the one making the application, information such as financial statements, proof of income, recent tax returns and a hardship letter need to be submitted along with the forms.
In most cases, the lender will require you to try and sell the home for like 90 days before they consider accepting the deed in lieu. You will need a copy of the listing agreement when applying the deed in lieu as proof that you tried selling the home.
Why are deeds in lieu unpopular?
Before accepting the deed in lieu, lenders will first assess several risks. For instance, there is the risk that the property’s value may not be more than the remaining balance on the mortgage. There’s also a risk that there could be other creditors who hold liens on that property. Lenders usually have to consider these factors before agreeing to a deed in lieu.
Most lenders do not also want to go through the hassle of dealing with additional property which they need to sell. For this reason, the deed in lieu is growing significantly less popular over the years. Additionally, there are properties that have multiple numbers of mortgages in them and liens. Sometimes the deed in lieu can be rejected because of these reasons. Lenders may be required to assume all the debts and encumbrances as a result of this transaction which makes it even harder for most lenders to agree to take this route. The deed in lieu of foreclosure normally works well when the lender has great interest in the property.
Author Bio:
Patrick Ward is a legal researcher specializing in finance, loans and debt analysis, and bankruptcy law. He has a decade of experience in analyzing the legalities involved in the dynamics between local and global financial institutions. He is also passionate in helping individuals overcome their financial challenges. Follow on twitter @blgbankruptcy
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