By Kay Wilson-Bolton
August 18, 2008
To some this simply means, I don’t want to play this game anymore. To homeowners who can’t make their payment and to others who don’t want to, deeds in lieu of foreclosure are a way of getting rid of that house that is now so much trouble.
It is an alternative to a short sale or foreclosure . It means that homeowners simply give their property to the lender who made them the loan.
Sounds pretty simple and rather attractive to most. Remember that nothing is easy. No matter your worldview, we don’t shed the consequences of our decision so easily, and REALTORS® need a basic understanding of this process to effectively assist their clients in these circumstances.
A deed in lieu of foreclosure is a deed given by the trustor (the borrower) to the beneficiary (the lender) to stop the foreclosure process or as a way to completely avoid the start of the foreclosure process.
When a lender accepts a deed in lieu of foreclosure, the lender avoids the costs and delays of foreclosing. However, junior liens are not extinguished whereas in a foreclosure, junior liens are.
The borrower may try to set the conveyance aside, and/or the borrower’s other creditors may argue that the conveyance was a “fraudulent conveyance” which jeopardizes their ability to satisfy their claims against the borrower.
Lenders can protect themselves against hidden junior liens by obtaining an endorsement to the beneficiary’s title insurance policy that places title in the beneficiary free and clear of any junior liens.
A deed in lieu of foreclosure and thus stops the foreclosure and, the borrower avoids any further injury to his/her credit and insulates himself/herself from any possible exposure to a deficiency judgment.
If the deed in lieu is given to the lender early on, the borrower avoids having a notice of default recorded against his or her name. However, the borrower will be denied any opportunity to retain the excess proceeds, if there are any, following a trustee’s sale.
Borrowers better have a clear written agreement between the borrower and the lender regarding this issue of whether the debt is cancelled or whether the borrower still owes the lender any additional sums of money when tax time rolls around.
A deed in lieu of foreclosure, given at the time of making the loan or required to be given in the loan documents, effectively cuts off the borrower’s redemption rights (with a judicial foreclosure only) following default and is prohibited by law.
At one time, there was a distinction about between the disclosure requirements upon a bank that foreclosed on a property and one who accepted a deed in lieu of foreclosure.
In this day of meth labs, death by suicide and AIDS, these elements are problematic to a buyer of a home acquired by foreclosure or by a deed in lieu of foreclosure.
The bottom line is for all buyers to beware, work with people you know and trust or is known by someone who is.
Ask questions. Demand answers. Don’t pay for things that are actually free. Remember that a prostitute is a person who willingly uses his or her talent or ability in a base and unworthy way, usually for money.
A predator is an organism that lives by preying on other organisms and victimizes, plunders, or destroys, especially for one’s own gain. They eat their prey while it’s still alive.
Kay Wilson-Bolton is the owner of CENTURY 21 Buena Vista with offices in Ventura and Santa Paula. She brings a regional perspective to local issues. She can be reached at 805.340.5025. Her web address is www.readysetkay.com