A Deed in Lieu of Foreclosure is an alternative to a foreclosure. This is a way to settle voluntarily and in good faith in which the borrower surrenders their home to the lender and moves on. The advantage for the borrower is that it releases them from the debt associated with the defaulted loan. The borrower avoids a painful and time consuming foreclosure. The advantage for the lender is a reduction in the cost and time of foreclosing on the property.
In most cases a lender will only accept a deed in lieu if there are no other liens, 2nd mortgages or debts attached to the property or these liens can be significantly negotiated. This is due to the fact that the bank does not want to be responsible for the other liens that are attached to the property; this is why most lenders will push for a foreclosure instead because it removes all junior liens. However, this being said, the laws and rules are rapidly changing every day and If you are in a tough spot and simply want advice or questions answered as to which direction may be best for you, give me a call. No obigation, just straigh talk. I hope this helps.
Deed in Lieu of Foreclosure – FAQ Deed-in-Lieu
Frequently Asked Questions
Q: – When a mortgagor has been approved for utilizing a DIL of foreclosure, how much time does a mortgagee have to complete the DIL?
ANSWER -A DIL of foreclosure must be completed within 90 days of initiation of the process.
Q: – Does HUD allow $2,000 to pay off second liens when determining if a mortgagor is eligible for a DIL? (this is very important to know and we have utilized this option. Many so called experts say you can’t use a Deed in lieu of foreclosure if you have two mortgages. )
ANSWER – Effective with Mortgagee Letter 2002-2013, HUD increased the DIL of foreclosure consideration to not to exceed $2,000. Therefore, with the mortgagor’s consent, this consideration may be utilized to pay off junior liens to clear the title as stated in Mortgagee Letter 2000-05.
Q: – What is HUD’s process for acceptance of a DIL of foreclosure on an asset that is “structurally damaged?”
ANSWER – For servicing purposes, the mortgagee is to substantiate their business decision by what is stated within the mortgagee’s Quality Control Plan. For conveyance purposes, the mortgagee is to seek approval from the REO Division Director that has jurisdiction over the property.
Q: – Can a mortgagee revert from a foreclosure process to the acceptance of a DIL from a mortgagor?
ANSWER – This is a business decision the mortgagee is to decide based upon what is stated in the mortgagee’s Plan. You will need to speak with an attorney
Q: – Does a mortgagee have the ability to accept a DIL of foreclosure when there is an existing Partial Claim?
ANSWER – Per Mortgagee Letter 2000-05, page 37, paragraph E. Condition of Title, it is possible for a mortgagee to consider a mortgagor for a DIL when there is a Partial Claim lien. With the mortgagor’s consent, the consideration payable to the mortgagor may be utilized to affect a discharge of lien.
For more info on comparing Deed in Lieu Vs Short Sale click here
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