Sarasota foreclosure prevention turns attention from unpredictable short sales to deed-in-lieu-of-foreclosure, as attorney warns distressed homeowner to beware this Trojan Horse.
Sarasota (FL) homeowners Lauren & Steve S. are facing foreclosure.
They tried and failed at loan modification. In another article, I’ll share the hell they went through only to get rejected for loan modification.
Short sales, Steve and Lauren had heard, are unpredictable at best, forcing some property owners into foreclosure.
It was then that the couple received a welcomed invitation from their mortgage lender. Relieved but cautious, Steve & Lauren paid their attorney to advise them after talking with their mortgage lender.
To cut foreclosure costs and repossess houses much faster, mortgage bankers are on a public relations blitz to market the “greatness” of DEED-IN-LIEU-OF-FORECLOSURE.
Before jumping on the happy train, Steve & Lauren, after getting “screwed” by the bank over loan modification, consulted with a real estate attorney.
What Steve & Lauren discovered about deed-in-lieu killed their hopes of handing the keys to their bank and walking away to a new beginning.
Click Read More below now for the “truth” about the TROJAN HORSE called deed in lieu of foreclosure (aka “DIL”).
“I cannot advise you to pursue deed in lieu of foreclosure,” Steve & Lauren’s attorney told them.
Once thrilled at the hope of making a clean walkaway from the stress, Steve & Lauren reluctantly turned to short sale and the grueling, unpredictable outcome.
Deed-In-Lieu-Of-Foreclosure FACTS
Basically, Deed in Lieu is similar to a voluntary repossession.
The homeowner agrees to sign over the deed or “title” to their property and the lender agrees to cancel the mortgage.
In other words, the typical deed in lieu of foreclosure is a consensual transaction – homeowner complies with a long list of requirements imposed on you by your lender.
The mortgage lender evaluates your facts and circumstances and, if you’re lucky, the lender agrees to take your house instead of suing you!
Naturally, the lender draws up the Deed in Lieu of Foreclosure Agreement which must be signed by the grantor (that’s you the homeowner) and witnessed by two people and then notarized.
Upon execution, the deed in lieu must then be delivered to the grantee (your mortgage lender). The deed is also typically recorded at the local clerk of court in the public records.
No Clean “Getaway”….
Unfortunately, the DIL process is NOT as quick, clearly-defined or painless as banks’ PR make it sound.
For instance, the lender:
- Requires a mountain of financial paperwork to determine your eligibility.
- Will (typically) NOT consider DIL if you have more than one mortgage encumbering your property.
- Will (typically) NOT approve DIL if you possess (in the lender’s estimation) the ability now or later to pay what you owe.
- Reserves the right to seek a deficiency judgment against you. Unless otherwise stipulated in the Deed in Lieu of Foreclosure agreement, the lender may come after you for the unpaid debt.
- Requires you to suffer documented hardship such as loss of job, sickness, dissolution of marriage, etc
- Requires property considered for DIL to be your primary residence (that is, DIL (typically) is NOT for abandoned and/or investment properties.
- Requires you to exhaust ALL other options and DRAIN any money you’ve put away for emergencies and/or retirement.
- Requires you to list the property between 90 and 180 days.
- (If approved) will require you leave the property in clean condition (lender will require an inventory & a statement of condition).
Income Tax Consequences
Steve and Lauren’s tax professional divulged income tax consequences to consider with the Deed in Lieu of Foreclosure.
According to Steve, “Our tax guy said we would not owe tax on forgiven debt in our situation. In part, he told us it was a primary home, not an investment property or 2nd home. He cited The Mortgage Forgiveness Debt Relief Act of 2007.”
Real Estate Attorney KILLS Deed-In-Lieu Consideration!
Steve & Lauren’s attorney exposed the Trojan Horse.
“Our lawyer strongly advised us not to consider deed-in-lieu. He (attorney) believed it was ‘pre-judgment discovery‘ and advised us not to do it. He said a DIL is purely voluntary on the part of the lender and they most likely would not give me one, but would benefit by knowing all of our financial info. before they filed foreclosure.”
Further, their attorney mentioned something else of interest.
According to Steve & Lauren, their attorney believes banks only are suggesting DIL to those with potentially fraudulent mortgages.
This attorney apparently believes myriad future lawsuits will arise from illegally transferred titles through MERS – the Mortgage Electronic Registration Systems, which mortgage debt owners used to avoid paying state transfer fees and simplify the way mortgage ownership and servicing rights are originated, sold and tracked.
For Steve & Lauren, the potential backlash convinced them to reject Deed-In-Lieu despite what their bank’s PR people advertised:
- Sign your house over & walk away with NO deficiency.
- Receive $3,000 – $15,000 “walking” money.
- Save your credit.
Steve & Lauren chose not to pursue deed-in-lieu-of-foreclosure.
Not to question an attorney (since he/she is attorney for heaven’s sake) but I wonder if it’s prudent to accept just (one) attorney’s viewpoint. Why not get a 2nd opinion on something as serious as mortgage default? To me, Steve & Lauren did not get enough information from their lender about DIL for (them).
What do you think? Do you have experience with deed-in-lieu? What questions do you have about DIL or mortgage default options including foreclosure, short sale, deed-in-lieu? PLEASE go below and share a comment, question or experience. If you or someone you know wants to buy or sell a house in or around Sarasota (FL), please contact me now.
Sarasota foreclosure prevention is as confusing today as 4 years ago, when the bottom fell out of Sarasota real estate. Indeed, short sales are unpredictable at best with more and more debt owners demanding $$ (either lump sum contribution at closing or signed prom note) before providing full payoff & satisfaction. Loan modifications continue to fail, despite happy-talk from government reports. And now, deed-in-lieu is the mortgage industry’s latest marketing attempt to reduce foreclosures. What’s best for you depends on your attorney, tax professional & real estate agent…after getting facts from your mortgage lender.
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