what is deed in lieu of foreclosure and How Process Works for your house? When It comes to your primary home or investment property consequences.
Hey guys, this is Damon Hart. I’m here with Walt [Bullington 00:00:05], one of my favorite bankruptcy attorneys. I only know three, but he’s the most experienced here in Tampa, for sure.
I just wanted to let you get some information on Walt. And he’s going to tell you a little bit about deed in lieu. Walt, for anyone out there that’s looking for information on deed in lieu, can you tell what some of the pitfalls for a homeowner could be?
Yes. Damon, thank you. Deed in lieu is a good mechanism to get rid of a house, particularly when you’re upside down.
There will be a certain amount of money that you still owe, and the bank is going to look to either chase you for that amount. Let’s say you’re $50,000 behind or upside down on the mortgage.
When you sit down for the closing on the deed in lieu, the bank very well might ask you to sign a promissory note agreeing to pay them that 50,000 over time.
The bank also has a choice of forgiving the debt. When they forgive the debt, then you have to report it on your tax return as if you had earned that as income.
If they go after you on the promissory note, then you can consider a bankruptcy to get rid of the obligation, but you’ll need to consult with me or somebody like me to make sure bankruptcy is right for you.
With regard to the taxes, when you report that amount on your taxes, if you had filed a bankruptcy before you did the deed in lieu, then the bank cannot forgive the debt and you do not have to report it on your taxes.
Now that no matter what you do, you will be signing a warranty deed with the bank. A warranty deed says that you will protect the bank’s interest in this property for any clouds against the title.
If there’s a judgment out there against you, you just agreed by signing the deed in lieu to pay that judgment on behalf of the bank. I hope this information has been helpful to you.
Wow. Yeah, certainly. I think it’s definitely helpful to anyone out there that is, knows someone that’s in a situation where they’re considering a deed in lieu. This information is definitely helpful.
What I’ll do is I’ll put Walt’s information here in the description. You can contact him directly if you know anyone that is looking for information on deed in lieu. Again, thanks for tuning in.
4 Quick Tips to Start a Deed in Lieu of Foreclosure
Are you ready to start a deed in lieu of foreclosure? Great. I’m going to give you four quick tips that you need to know before you get started. The deed in lieu process can be tough. These quick tips should help you out. Ready to get started? Here we go.
So to start, what is a deed in lieu of foreclosure? I know. You may be thinking that, “Well, it’s a foreclosure.” It’s not. It’s a program to avoid it. A deed in lieu of foreclosure is a program that allows borrowers to transfer the ownership of their property or the deed of your property back to the lender in good faith, or in lieu of avoiding a foreclosure sale. It has a lot of the same consequences as a short sale and has some great values and benefits to help homeowners avoid a foreclosure.
But starting the deed in lieu of foreclosure process is the most important. If you don’t understand some of the key factors in starting a deed in lieu, you may waste a lot of time and you could put yourself at more risk of a foreclosure sale. That’s why I created these four quick tips. Number one, starting a short sale before deed in lieu. You may actually have to do that and some lenders require it. It all depends on your mortgage investor.
what happens when you do a deed in lieu of foreclosure
Starting a short-sale first, do you have to? Well, like I said, some wonders may actually require you to list your home for sale for a set period of time. These three things are common, and a lot of lenders do require it. The best way to find it out is to contact your lender and speak to your single point of contact, or work with a professional organization that understands the DD loop process.
So if you have to do short-sale before deed in lieu, well you may have to list your home for sale for a period of up until 120 days. It could be less. I’ve seen both 30, 60, 90, but you need to figure it out with your lender. You actually have to list your home for sale with a licensed real estate agent. I know what you may be thinking, “I may just do it on my own to avoid the real estate commissions.” But if you own more on your property than your home is worth, well it may be difficult to find a buyer that will pay off your mortgage. Your lender actually may require you to use an agent. But it’s okay, a lot of lenders will actually pay up to 6% real estate commissions so you can get a professional assistance doing a short-sale and not have to pay those real estate commissions.
Another thing is the lender may require you to list your property at fair market value. You may not be able to get the value of the home from your lender. You may have to rely on your real estate agent to compare properties and list the property as close to fair market value as possible. If you get an offer, your lender will review the market value to make sure that it was listed at fair market value and the offer is comparable. If you listed above market value when you apply for the deed in lieu of foreclosure, the lender could require you to put the property back on the market at a lower rate.
Number two, a foreclosure sale within 60 days, well you may not be able to apply. So if you do have a foreclosure sale in 60 days, you may not get approved. Sometimes lenders will not approve a deed in lieu of foreclosure with a sale within 60 days. You may actually apply, but you could actually get denied. Sometimes lenders feel that if it got to that point, you had options to consider before then, and waiting that far into the process may not be beneficial at that point to the lender. So you want to make sure that if you do have a sale date on your property, you determine your options well before. So here, really two questions that you should be asking your lender when you’re getting started or a professional. Can you apply for a deed in lieu of foreclosure with a foreclosure sale?
It’s important. You don’t want to apply with all your hopes and all your eggs in one basket and find out it gets denied. Then the next option is a foreclosure sale. Where are you in the foreclosure process? Depending on your state, the state rules could actually help you judge where you are in the process and where a potential sale could be. If you’re 120 days behind on your mortgage, lender may say that you’re in act of foreclosure. That doesn’t necessarily mean you have a foreclosure sale. So it’s really important to figure out exactly where you are in the process before you apply.
Number three, settling a second mortgage and subordinate liens. Well, you might not have a second mortgage or a home equity line of credit or a past due HOA lien on your property. But it is important to know if you do, how to handle it. Sometimes you may actually get into the process and find out that a passed due credit card from a few years back ended up as a lien on the property. You need to know how to handle it and if that’s going to be a problem. It could affect your deed in lieu of foreclosure.
What do you do to settle these? Well, lender will require that the subordinate lanes get settled before you’re actually approved for the deed in lieu. You could know the terms of the deed in lieu of foreclosure with your first mortgage, but your subordinate lien holders will need to release the lien off the property. Here are three really important steps or questions that you really need to ask. I refer to them as steps because these questions will lead into steps for you gathering more information. One, what will your first mortgage offer to other liens? Sometimes, just like the half of short-sale program, or the home affordable foreclosure alternative program may give a certain dollar amount to help you settle those liens. You’re going to need to find out if you’re eligible for that program or if your investor offers any cash contributions to help you settle those liens.
deed in lieu of foreclosure vs short sale
You’ll need to coordinate that with both the first, the second mortgage or subordinate liens. What is the process with the other liens? Well, sometimes a second mortgage may want you to apply just like you do it for the first. If you’ve ever applied for the loan modification, you know all the paperwork that’s involved. Well, it’s the same thing in a deed in lieu of foreclosure process. You may have to do that with two separate lenders, but you need to gather the process. What do they want? When do they want to know how much they’re going to get? If they’re not going to accept the offer from the first mortgage, what can you negotiate with them in the process? What is the process for your first mortgage? It’s pretty important. Will they contact the second mortgage? May not pay the best option.
Do you really want your debt collector negotiating with another debt collector to work out a settlement of two different debts? I don’t think I’d want to. If you’ve ever handled the process on your own, you can sometimes know how the process can be with lack of communication or poor communication, misinformation, the run around, you name it. All the stories out there say it all. But you want to find out what you need to do. Do you apply and submit your documents, then contact your second or subordinate liens? Or do you do both at the same time?
Your first mortgage may order a title report that will show any other liens on the property. And if you don’t know that there are liens on the property, you may want to find that out yourself. Maybe do your own title report or contact a title company to do it for you. It’s pretty important. You don’t want to lag in the process.
Number four, types of deed in lieu programs. This is pretty awesome because there are some great programs available and you need to know what programs you actually want to apply for. It’s good to know them up front. Depending on your investor could determine what programs are actually available. So what’s available for you? Like I said, your mortgage investor may offer different deed in lieu of foreclosure programs. Depending on those investors will determine what options are available.
Here are four common options. One, the traditional deed in lieu. It allows you to turn the property back over to the lender in lieu or good faith of foreclosure, but it allows you to walk away. When you’re approved, you have a set period of time you need to leave the property in broom swept condition and you move on. Could get relocation assistance if eligible, not always guaranteed. Two, and short-term deed in lieu lease option.
Some lenders allow you to stay in the property for a period of up to 90 days. Depending on your investor, they may allow you to stay in the property without a mortgage payment or at lease payment. You may be required to keep up with the utilities and the maintenance of the home until you leave, and you may be even eligible for relocation assistance when it’s time to relocate. Some lenders may offer a 12 month deed in lieu lease option, which gives you a lease program for up to 12 months. The lender may require that you pay fair market rent. You would have to apply for this and be eligible to make the monthly payment based on the lender’s guidelines. But if you want to stay and you’re not ready to move, it’s a great option because you get away from the debt and you get to lease the property.
Well, let’s say you have a renter in the property. Sometimes there are options available, not only a deed in lieu but maybe even a loan modification. But if you have a renter in your property, they may be able to lease the property back for up to 12 months at fair market rent. The renters will actually have to apply as well if they’re eligible. Now these four different types of options may not all be available for you. Again, contacting your lender could be the most important step, is you can gather all these facts to figure out if all of these are available or one, two, three or all.
I hope you found these quick tips helpful. Now, there are a lot of different factors to consider before you apply for a deed in lieu of closure, but these are some pretty key common factors that you could consider. I do recommend contacting your lender to find out all the steps and all the benefits and values that deed in lieu foreclosure could potentially offer, or contact a professional. Here at Delmarva Home Relief. We do offer deed in lieu foreclosure assistance and can give you your options in a free consultation. So if you are interested and you need some help, consider giving us a call. Be glad to offer you assistance. Thank you and I hope you enjoyed.
deed in lieu vs short sale