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Deed in Lieu of Foreclosure

Deeds in lieu of foreclosure is where the borrower or mortgagor will transfer all the interest in the property to a lender or mortgagee to help satisfy the loan that happens to be in default to avoid the home being foreclosed on and to stop the proceedings.

Getting this will offer you several advantages, including advantages for the lender as well. The main advantage for you is that it automatically releases you from most or all of the debt that has been associated with a defaulted loan. You also avoid any public notice of a foreclosure proceeding and you may also get better terms that you wouldn’t in a formal foreclosure. Another reason for a deed in lieu for you is that it will hurt your credit less than a foreclosure does. For your lender, they will get a reduction in time as well as the cost of repossession, it also lowers the risk for borrower revenge like vandalism and metal theft of the property before they have been evicted by the sheriff, as well as there being advantages if you also happen to file for bankruptcy at any time.

If there happen to be junior liens, this will not be that great of a settlement for a lender. They will not want to enter into any liability from any type of junior liens from a property owner and they would rather foreclose to keep and clean the title of the property.

In order for there to be a deed in lieu of foreclosure, there needs to be an indebtedness will need to be secured by real estate before it can ever be transferred. Both parties will need to enter the transaction in good faith and voluntarily. The agreement for settlement needs to have total consideration that is at minimum equal to the fair market value of the property in question. Sometimes a lender will not go through with a deed in lieu if the outstanding debt actually exceeds the fair value amount of the property.  There may be other times that the lender will agree to this settlement because they will end up with the property anyways and foreclosure is an expensive process for the lender.

Because of the requirement that the settlement be voluntary, lenders will often not act on a deed in lieu unless there is a written offer of the settlement from the borrower that actually states that the offer is to enter into negotiations voluntarily. This will then start the enactment of the parole evidence rule and will protect a lender from any type of claim that a lender had pressured the borrower into a settlement or had acted in bad faith. This will then allow both parties to proceed with negotiations.

Neither parties are obligated to proceed with this type of agreement until there is a final agreement reached that both parties are happy with.