Deed in Lieu of Foreclosure and a Promissory Note payable to the Mortgage Insurance Company OR a Foreclosure?

Asked almost 5 years ago - West Palm Beach, FL

Our home is in foreclosure. The amount owed is $290,000.00. We offered the Bank a Deed in Lieu of Foreclosure and they accepted if we execute a Promissory Note for $20,000.00 payable at $105.00 per month for 15 years.
The home is owned by my ex-husband and I and I now live out of state. I have researched alot of information and am trying to determine if a Deed in Lieu with a promise to payback $20,000.00 is a better idea than a foreclosure.
Our credit is already ruined at this point.
What do you think?

Attorney answers (4)

  1. Margery Ellen Golant

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    Answered . With all due respect, the short sale situation in Florida is very different than in other states for a number of reasons. These days short sales are usually NOT win-win situations - many lenders will not approve a short sale unless the borrower gives them a note for the difference, or else they specifically reserve their right to pursue deficiency judgment. In that sort of situation, completing the short sale can be the WORST THING you can do, since you give up all leverage.

    In your case, $20,000 is not an enormous sum, so may be more palatable than the alternatives, but for many people, the amount the lender will seek is MUCH GREATER. Since many people read these answers, I want to make certain that it is clear that unless a deed in lieu specifically provides that it is in FULL SATISFACTION of the debt (which few do), it is generally a REALLY BAD IDEA to proceed.

  2. Margery Ellen Golant

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    Answered . Deeds in lieu are a sucker bet in many cases. I NEVER advise my clients that that is a safe course unless there is a specific provision that the Deed in Lieu is in full satisfaction of the obligation.

    Depending on the status of your foreclosure case, you may still be able to defend. If it is too late for that, I would suggest that you consult a bankruptcy attorney who does Chapter 7 and Chpater 13. One of these is probably the only real option for you, and which one depends on a careful analysis of YOUR particular situation.

  3. H. Dillon Graham III

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    Answered . Sounds like a bad idea. You can fight the deficency judgmnent after the house is sold.

  4. Yael Kaner

    Contributor Level 9

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    Answered . Hello:
    Pls. note I am an attorney in California and so you are best served by contacting a local attorney or some free clinic that could provide detailed legal guidance to your specific condition. Having said that, let me try and clarify a bit on a suggested course of action. Because the value of the property is up-side down, there is going to be a difference between the amount the Lender will get by selling the property by Foreclosure, judicial or non-judicial, OR by a Deed in Lieu, OR a Short sale. So if you did nothing eventually the property will be foreclosed on and the Lender may or not come after the Borrower, your husband, for the deficiency amount ( the difference between your obligation to the amount the Lender recovered). So, it is generally not a good idea to do nothing.
    If you offered a Deed in Lieu and got this ridiculous offer which you are not happy with, than it is not really an option.
    You may want to consider a Short sale. consult a local Realtor who will guide you through the process, generally, the homeowner has no out of pocket expenses, i.e. the lender pays all the transfer fees, escrow, etc., since the Lenders are in the business of loaning money not selling properties, they really don't want to end up with your property and will agree to the Short sale. Your Realtor will be paid a commission from the sale proceeds and you will not have to worry about any additional payments.
    Seems like a win-win situation?
    Last suggestion, since many Realtors don't have the legal back ground necessary, READ the contract, if there is something you dont like, write a response saying you want that provision out. if there are things you want in and they are not there ask for them in writing and make sure they are included, such as NO COST TO HOMEOWNER, NO DEFICIENCY JUDGMENT, TRW reporting of “Pre-Foreclosure in redemption” , that will show future lenders that you have tried to mitigate the Lender's position and that may be looked as more favorably than "Foreclosure".

    IT'S YOUR LIFE - LIVE IT ON YOUR OWN TERMS!

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