What is a Deed In Lieu of Foreclosure?
A Deed In Lieu of Foreclosure is a voluntary transfer of the property to the Lender in full satisfaction of the amount owed. By accepting the Deed In Lieu of Foreclosure, the Bank, in most instances, releases the Borrower/Homeowner from personal liability on the loan also known as a deficiency. Commonly, Banks will not accept a Deed In Lieu of Foreclosure if there are other liens on the property. In our practice, we have been able to secure Deeds In Lieu of Foreclosure by settling with the Secondary Lender and other lien holders, effectively clearing title for the Lender to facilitate the transfer. It is an intricate process and requires a full review of your file to come to a conclusion if this is even a good option for you.
When do I do a Deed In Lieu Foreclosure, and who benefits?
One of the most important issues for conducting a proper Deed In Lieu of Foreclosure is at which point the Borrower attempts to try to complete the Deed In Lieu of Foreclosure, in the beginning, middle or end of the foreclosure process. The benefit to the Lender is that it does not have to continue the foreclosure proceedings to the end. The benefit to the Borrower is that there may be no deficiency judgment from the Lender if there was only one loan associated with the subject property. However, in the recent past most homes were purchased with two loans and the Secondary Lender will release the lien only if there is some financial benefit to the Secondary Lender. Usually the Secondary Lender requires the Borrower to agree to pay them something towards the balance owed. The obvious negative result of the Deed In Lieu of Foreclosure to the Borrower is that the Borrower no longer owns the property, and therefore will no longer be able to possess the home.
Who really benefits from a Deed In Lieu of Foreclosure when it is my primary residence?
A Deed In Lieu of Foreclosure, to a very large degree only benefits the Lenders. The Lender requires a clear title. The foreclosure process is the manner by which the Lender secures clear title. In the event the subject property has more than one loan, as most loans now have, or there are other liens on the subject property, the Borrower, or their Attorneys are typically responsible for removing those liens prior to the Deed In Lieu of Foreclosure taking place. Unless a Deed In Lieu of Foreclosure is part of the regular practice of the Attorney or Realtor you are working with, please be aware that they are likely wasting valuable time, and may do you harm if they are not telling you up front that you may be still liable to the Secondary Lender. This is a very highly specialized field, and proficiency with the Deed In Lieu of Foreclosure process comes after years of experience working with Lenders. Essentially the borrower is doing the lenders work in the foreclosure.
What does the Borrower get in exchange for doing the Lender's work in a Deed in Lieu of Foreclosure?
The Borrower will be released from liability from the subject property. The Lender will get the property back for what was lent in the first place. At least in Illinois, the judicial system justly, typically, does not allow deficiency judgments. The threat of a deficiency judgment should not be the only reason the borrower gives up and chooses to do nothing or give a Deed In Lieu of Foreclosure. The fact of the matter is DILF often take just as long as a Short Sale to get approved and all the while the borrower is typically not putting up any defense to the Foreclosure. Borrowers must examine all options including DILF when they fall behind in mortgage payments. There are multiple defenses to a foreclosure and all must be considered and reviewed with qualified advisers.