A deed in lieu of foreclosure is a deed instrument in which a mortgagor (borrower) voluntarily conveys his property deed to the mortgagee (lender) or servicer in exchange for a release from most or all of the mortgage obligations associated with a defaulted loan. A Deed in lieu of foreclosure can prove beneficial to both the borrower and lender in that it:
- enables the borrower to walk away without any deficiency judgment;
- has less of a negative impact than a foreclosure on a borrower’s credit report;
- significantly reduces time, costs and legal fees associated with a lender foreclosing upon a mortgagor’s home; and
- lowers the risk of destruction, neglect and deterioration of the property.
A borrower may consider a Deed in lieu of foreclosure if he is in default and not eligible for a refinance or loan modification, has a loan amount that exceeds the value of the home, or can neither afford nor sell his home. However, Lenders will typically not consider a Deed in lieu of foreclosure if there’s any junior liens attached to the borrower’s property.
Lenders do not want to assume the liability regarding the junior liens of the property owner. Consequently, Lenders often mandate that a borrower’s title be free and clear of any junior liens for consideration of Deed in lieu of foreclosure.
A major requirement for a Deed in lieu of foreclosure is that both the borrower and Lender enter into the transaction voluntarily and in good faith. This is achieved, in part, by the borrower’s compliance with the Lender’s requirements for the submission of a hardship letter, financial documents and proof of monthly expenses and income. Upon the Lender’s acceptance of a Deed in lieu of foreclosure the borrower agrees to vacate the premises on or before, a particular date and time. The borrower may receive a relocation fee if it was part of the Deed in lieu of foreclosure negotiated terms.
Lenders may also offer incentives (“cash for keys”) to borrowers to encourage them to choose a Deed in lieu of foreclosure rather than continue to fight their foreclosure action and/or stay in the home beyond the foreclosure sale date. In a cash for keys scenario, the Lender pays a homeowner to move out by a specific date contingent upon the homeowner’s full compliance with pre-negotiated specific terms (i.e. the home is completely empty and broom cleaned).
To improve the likelihood of success in obtaining a Deed in lieu of foreclosure a homeowner is best served to seek legal advice from an experienced New York Foreclosure defense attorney. The Law Offices of Bruce Richardson can provide an aggressive New York foreclosure defense Attorney to assist homeowners in their attempts to obtain a Deed in Lieu of foreclosure. Contact our office immediately if you seek legal assistance in obtaining a deed in lieu of foreclosure.