A deed in lieu of foreclosure is usually a last resort method that homeowners can try when facing foreclosure. It is where basically the homeowner offers the lender the deed to there home, to stop the foreclosure proceedings. Some homeowners bank on this being a last option to avoid foreclosure, but there are times a lender will not accept the deed in lieu.
The lender will not consider a short sale or deed in lieu of foreclosure until the homeowner is 90 days late on their mortgage. This is why it is a last resort for most; there many options to stop a foreclosure and keep your home, then to just give it up to the bank. The lender wants to help you keep the property and keep making payments if they can help you find a way to do that, they would rather you go that route.
Usually after you have missed two months of consecutive mortgage payments, the lender will be looking at your property to determine if the fair market value of the place. They will also be determining if they have an interest in taking your property back, if a deed in lieu comes into play.
One of the main determining factors to getting your deed in lieu accepted is the market condition in your area and the liens against your property. Remember the bank wants to get its money back on the loan or close to it, so if they don’t think that is going to happen getting that deed in lieu accepted will be tough.
If there are junior liens against the property such as a second mortgage, equity line, mechanics liens, or other loans, the lender will not take back a deed in lieu of foreclosure. The reason the lender would not do this is because they would be accepting the responsibility of paying off those liens before the property title could be sold or transferred and that would not be helping them get back there money.
Because of those liens, if you have any the lender would rather go through the foreclosure process and go to the auction to buy the property with all of the junior liens extinguished. When the auction is completed, the lender will get a title free and clear of junior liens and encumbrances.
The main overall reason that a lender will not take a deed in lieu of foreclosure is an economic decision. Keep in mind that if a deed in lieu of foreclosure benefits the lender, they will take it. If the lender will get more liability by accepting the deed, the lender will not take it. It is pretty much as simple as that, so keep in mind the lenders perspective, when asking for a deed in lieu.
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