Can a “Deed in Lieu of” Really Stop a Foreclosure?
Recently lenders have been taking homeowners’ deeds in lieu of the foreclosure process to get title to their homes. The lender simply accepts a deed in exchange for forgiving the homeowner of his mortgage or deed of trust loan, however, this does not mean the homeowner is no longer responsible for a loan deficit. Let’s look more closely and see the ramifications of this legal transaction. It usually starts after the homeowner has fallen behind on his loan payments and is considering foreclosure, or he has already been served with a “default notice”. Time is working against the homeowner because the lender will, or already has, started foreclosure proceedings. The homeowner is being bombarded by outside information sources because his foreclosure has become a part of the public record or he is getting information from well-meaning but uninformed people. As soon as the We Buy Houses homeowner notifies the lender of his impending problem or his loan is delinquent, the lender orders an appraisal or BPO (Broker’s Price Opinion) to determine its market value. The lender now knows if he can make money on the property if he takes it back at a foreclosure auction or by having the homeowner give the deed back to the lender. The lender’s decision will be strictly financially motivated from this point forward. The risk of taking the property by foreclosure includes the higher legal costs, an extended loss of interest on the loan, real estate market risk, realtors’ commissions, carrying and closing costs, and increased reserve requirements for the Federal Reserve. However, the most important issue for the lender is any other open liens on the property that would normally be extinguished at the auction, but will remain in place if the deed is transferred.