Mother & Daughter Blog: The Simple Way Out?????? is not a good "deed"

STOP! Check out the whole Meaning, Procedure & Requirements of

Deed-in-lieu of Foreclosure

because......

Remember: The simple way out, is not that simple! 

Although you hear alot about whatever is hot at the time, when it comes to the foreclosure process it is wise to take a step back and really check out what the different terms mean and how it will affect the seller, lender and the agent(s).  Read the fine print, look for the curve balls, don't be blind sided. Remember: The simple way out, is not that simple!  There are several factors involved in a Deed in lieu of foreclosure.  It is not just as simple as getting it over with now, mail the lender the keys and the deed and it will be all over. 

Let's clear up some differences in forclosure  vs Deed in lieu of Foreclosure - Lets see what the process is and what is involved in the "simple way out" ---

Deed in lieu of foreclosure: 

• A deed in lieu of foreclosure (deed-in-lieu) is a voluntary deed signed by all owners of record of a mortgaged property in foreclosure, or about to be placed in foreclosure, that transfers ownership of the mortgaged property to the lienholder/servicer and thereby avoids the lienholder/servicer's actions to foreclose.

Hardship: 

• A hardship is an event of series of events that are generally beyond a borrower's control and that resulted in a reduction of income and/or increases in expenses.

Property Marketing:

• The secured property should be formally listed with a real estate agent/attorney for a period of at least ninety (90) days as evidenced by a signed listing agreement.
• The listing real estate agent/attorney should have territory that includes the area in which the secured property is located.
• The listing real estate agent/attorney must hold a valid state license
• The listing real estate agent/attorney should have listed the secured property with the local MLS (Multiple Listing Service) thereby ensuring that the secured property had fair exposure to all potential investors/buyers.

Condition of Title/Property

• Borrower must contact all subordinate lien holders to secure written release of the liens in recordable form, prior to the transfer of title to Servicer.  Included are mortgages, judgements, attachments, IRS liens, etc.
• Borrower must convey an acceptable, marketable title as evidenced by title search.
• The secured proeprty must be vacant at the time of transfer of ownership to Servicer.
• The secured proepryt must be inspected by a Servicer's representative prior to the date of transfer of ownership to Servicer.
• If the above-referenced account is in default, any and all collection activities, including foreclosure proceedings, will continue until Servicer has agreed in writing to accept a deed in lieu.
• The processing time for a deed in lieu review is thirty (30) calendar days from the date of receipt of the completed financial package.
• A complete financial package includes all documents Servicer has requested from Borrower and the listing real estate agent/attorney, including, but not limited to:
•    >>  A complete financial information from Borrower
•    >>  Written hardship letter from Borrower outlining his/her financial situation and the events that cause the  financial hardship.
•   >>   Borrower's last two bank statements, checking and savings
•   >>   Borrower's last two paycheck stubs
•   >>   Borrower's last two statement from the senior lienholder(s), if applicable 
•   >>   Borrower's most recent state and federal tax returns
• Servicer reserves the right to request additional documetation as may be necessary to verify a change in Borrower's financial situation and/or hardship or the status of the secured proeprty prior to acceptance of a deed in lieu.  Such documentation may include re-verification of Borrower's financial status at the time of loan origination.
• Servicer reserves the right to terminate the review of the deed in lieu request if Borrower fails to provide all requested documentation.
• Borrower's execution of a quitclaim deed will not automatically release him/her of liabilty.  A quitclaim deed only releases an owernership interest in the property.  Likewise the attempt to execute a deed in lieu with Servicer's consent will not automatically release borrower of liability.
• Servicer will require a valuation of the secured property based on an interior and exterio inspection.  Borrower will probably be responsibile for any appraisal.

It's not that simple from the lender's viewpoint.
If there are any other loans other than the foreclosing loan against the property, the lender accepting the deed in lieu will need to pay those off to obtain clear title.   The same applies for any possible judgments that may have been recorded.  Then there is the question of who is on the property title.  Are all the owners interested in providing a deed-in -lieu?  Do all those owners really understand exactly what they are giving up?  Are they going to come back a year later and say they didn't understand?

There are 4 main conditions for a lender to consider a deed-in-lieu.
1. Foreclosure is imminent and unavoidable
2. The borrower is unable to sell the property.
3. There should be no other liens, or attachments to the property.
4. The property needs to be left in broom clean condition.

If those conditions have been, or can be met, some lenders will consider a deed in lieu of foreclosure, although most lenders will prefer the use of a compromise, or short sale.  This is one of the least preferred alternatives to foreclosure and should be the last option explored.

HOT NOTES:

• Servicer will not change the historical payment record to reflect a payment history other than the actual payment history.
• Also lender/servicer may report information about your account to credit reporting agencies.  Other defaults on your account may also be reflected on your credit report.
• IRS Reporting: Servicer will report any Deed in lieu transaction to the IRS as may be required by IRS regulations
• It is the Borrower's responsibility to consult with his/her tax advisor regarding any tax implications of a Deed in lieu transaction.

Remember: The simple way out, is not that simple!