What is a deed in lieu of foreclosure? A deed in lieu of foreclosure in Omaha is a legal term for a borrower conveying all interest in a real property to the lender. It satisfies a loan that is in default and avoids foreclosure proceedings.
The deed in lieu of foreclosure offers several advantages to both the borrower and the lender. The principal advantage to the borrower is that it immediately releases him/her from most or all of the personal indebtedness associated with the defaulted loan. The borrower also avoids the public notoriety of a foreclosure proceeding. The borrower may receive more generous terms than he/she would in a formal foreclosure.
Another benefit to the borrower is that it hurts his/her credit less than a foreclosure does. Advantages to a lender include a reduction in the time and cost of a repossession. It may lower risk of borrower revenge (metal theft and vandalism of the property before sheriff eviction). The borrower may have an additional advantage if he subsequently files for bankruptcy.
Any junior liens make a deed in lieu a less attractive option for the lender. Sometimes, the lender will not proceed with a deed in lieu of foreclosure if the outstanding indebtedness of the borrower exceeds the current fair value of the property. The lender will likely not want to assume the liability of the junior liens from the property owner, and accordingly, the lender will prefer to foreclose to clean the title.
To be considered a deed in lieu of foreclosure, the real estate transferred must secure the indebtedness. Both sides must enter into the transaction voluntarily and in good faith. The settlement agreement must have total consideration at least equal to the fair market value of the conveyed property.
Remember “jingle mail” where the owner gives up and mails the keys to the bank? Because of the requirement that the instrument is voluntary, lenders will often not act upon a deed in lieu of foreclosure unless they receive a written offer of such a conveyance from the borrower that specifically states that the offer to enter into negotiations is made voluntarily.
The borrower or the lender may not proceed with the deed in lieu of foreclosure until reaching a final agreement. Because short sales and deeds in lieu are similar transactions, many people get them confused.
A short sale occurs when a homeowner sells his or her home to a third party for less than the total debt remaining on the mortgage. With a short sale, the lender agrees to accept the proceeds from the sale in exchange for releasing the lien on the property.
Most homeowners who complete a short sale will face a deficiency judgment. A few states disallow deficiencies after short sales.
Remember, with a deed in lieu of foreclosure, the borrower conveys all interest in a real property to the lender. The deficiency amount is the difference between the fair market value of the property and the total debt. In most cases, completing a deed in lieu will release the borrowers from all obligations and liability under the mortgage, but this is not always the case.
As investors, we are in business to make a modest profit on any deal. However, we can help homeowners out of just about any situation, no matter what! There are no fees, upfront costs, commissions, or anything else. We offer the simple truth about your home. We can help you sell it fast to resolve any situation.
If you’d like to give us a ring, we would be more than happy to spend some time with you to help you understand the process. You can reach us at 402 999.0577 to get all of your questions answered.