All You Need To Know About A Deed in Lieu of Foreclosure
What Is A Deed In Lieu Of Foreclosure?
The main thing to understand is the purpose and meaning of a deed in lieu of foreclosure, which is basically a legal document that gives the owner a title to the real estate. Such a deed is special because the mortgagor gives up his or her rights and interests in the real estate to the mortgagee for the consideration that includes complete discharge of all liabilities as set out in the loan document or mortgage. It is not uncommon for such a release to be subject to a wholly separate settlement agreement.
It is important for commercial lending institutions that provide mortgages to be familiar with the term “deed in lieu of foreclosure”. This means being aware of who the parties to deed in lieu of foreclosure are (i.e. the mortgagor - who in most cases is the borrower, and the mortgagee that is, in most instances, the lender.) There must also be mutual consent between these two parties, and an agreement that all concerned are acting “in good faith.” The lender must also take a few steps before entering a deed in lieu of foreclosure such as ascertaining whether the title to the property is clear and that the language contained is going to protect from the merger of the mortgagor’s fee simple title with that of the mortgagee’s lien interest. In the event that there are multiple lien holders (for example, if the borrower has secured additional debt against the property with a lender other than the mortgagee), then most lawyers would advise against going ahead with a deed in lieu of foreclosure.
The timing of a deed in lieu of foreclosure should also be a key consideration, or in other words when does such a document become valid. It is most common for a lender to pursue a deed in lieu of foreclosure when the chance of collecting a deficiency judgment is not possible. It should also be considered what will happen if the current value of the property is greater than the amount of debt outstanding on it. In such situations, there would be very little point in pursuing a money judgment if the lender is sure that liquidating the property would fetch more than the amount owed.
It is useful for both parties to explore the option of a deed in lieu of foreclosure at an early stages of a payment dispute arising, which could be as soon as the lender determines it is time to foreclose. This would be the ideal time to execute the deed in lieu of foreclosure. Whatever the case, such documents are the product of out-of-court settlements and the process whereby it is secured is also non-judicial, meaning the borrower does not need to have a judgment placed on their credit record.
The main reason both parties would entertain the idea of making a deed in lieu of foreclosure is that the lender is able to get immediate possession of the real estate (which can save him or her many months, and even years), and, it also saves a great deal of money that would otherwise be spent on attorney’s fees. Ultimately, it is for reasons of expediency as well as expense that motivate lenders into accepting a deed in lieu of foreclosure.
