A deed in lieu of foreclosure comes with its pros and cons for both the lender and the borrower. The most obvious benefit is the ability to avoid the foreclosure procedures that can be costly and time-consuming. On top of this, the borrower is also in a better position to avoid the public notoriety and maybe in a strategic position to lease the property back from the lender. It is advisable for the lender to assess the different risks such as the risk of the property being less than the balance that remains on a mortgage and that the junior creditors may also be holding the lien on that property.
A question in the minds of many people is on whether a house owner who is facing foreclosure may need to give back the property to its lender using the deed in lieu of foreclosure. In case the owner of the property is ready to dispose of the property, the lender may be ready to accept the property’s deed from its owner instead of using a foreclosure sale. This is what is termed at the deed in lieu of foreclosure. If as a property owner you are facing any foreclosure, you should know that you can avoid any negative consequences of the foreclosure as long as you are ready to give that property to the lender prior to a foreclosure sale.
This means that the deed in lieu of foreclosure can be described as transferring the property’s title from its borrower/owner to a lender with the goal of avoiding any foreclosure or even to halt any process of foreclosure. This document has an agreement between the lender and the borrower that has been negotiated after the arising of the foreclosure possibilities. This agreement isn’t part of the original documents that were used to acquire the loan. This means that it is not possible for a lender to agree when giving a loan that they will accept the deed in lieu of the foreclosure. Therefore, according to the national default servicing, the borrower is not allowed to create any contractual obligations allowing them to force the lender to accept the property rather than going through the process of foreclosure.
The lender is not also allowed to force the borrowers to surrender the document. Doing this would end up infringing on the rights of the borrowers. Where an agreement is made on accepting the deed in lieu of foreclosure, this will need to be negotiated between the lender and the borrower. It is also worth noting that a borrower who is at a risk of losing their property as a result of a foreclosure cannot just execute and even record the deed that grants the property to a lender. In case the borrower tries to do this, the lender is supposed to put on record the “Notice of Nonacceptance”, which acts as the legal notice that the lender hasn’t accepted the deed in lieu of the foreclosure.
If a property owner also has several other liens against his property, like another mortgage or even a judgment lien, the senior lender who agrees to the deed in lieu of foreclosure will accept that property subject to the other liens. If a foreclosure happens, it will do away with any junior liens. A junior lien is one that has been recorded after the foreclosure of alien. This means that a lender may find it economically advantageous for the lender to go through that foreclosure process. A lender may also refuse the deed in lieu of the foreclosure due to factors such as the risk of the borrower wanting to set that deed aside. This is on top of the risk of the borrower wanting to do away with the lien and the risk of the creditors of the borrower claiming that the deed was as a result of fraudulent conveyance.