If I accept a deed in lieu of foreclosure will I owe my lender any more money?
Author: Rob K. Blake | Date: October 7, 2008 | Filed In: Foreclosure Answers
This is a great question.
A deed in lieu of foreclosure agreement is when the lender agrees not to pursue a foreclosure action against the borrower in exchange for the borrower signing the deed over to the bank. Hence the name, “deed-in-lieu”.
Deed in Lieu of Foreclosure Pitfalls
The obvious benefit for the lender is a speedier return to market for the property and the benefit for the borrower is a quick disposal of a liability they can no longer afford and no foreclosure filing on their credit report if they negotiate it.
However, the deed-in lieu doesn’t necessarily extinguish the mortgage note nor does it protect the borrower from deficiency judgments. Of course, your lender is not about to mention these two potential problems.
Having the mortgage note remain outstanding can cause problems down the road when attempting to obtain another mortgage. So all the benefit of not having a foreclosure filing on your credit report just got erased since there is no “Satisfaction of Mortgage” filed for that loan…and everyone in the industry knows that just screams, “Foreclosure!”.
Deficiency judgments are the other pitfall and those can costs you money down the road. If not negotiated away, a deficiency judgment is when the lender decides a year or two after since they didn’t get all of their money, to sue you for the shortfall. On primary residences in many states, this is outlawed, but not in all states and certainly not on rental property or vacation homes.
My advice if you are considering accepting a deed-in-lieu agreement is to get an experienced real estate attorney to review the agreement. Make sure to get the credit reporting benefit and a guarantee not to pursue any additional legal action or payment. Also, make sure to negotiate the issuance of a satisfaction of mortgage to county records office effectively extinguishing the old mortgage obligation.
With those three items addressed, you can put this chapter of your life in the past…and it will stay there!
Good Luck!
Author: Rob K. Blake
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