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"Deed In Lieu Of Foreclosure": What Does It Mean?
By
Darren Collins
A "deed in
lieu of foreclosure" literally means that
the lender will take the deed to a property
"in lieu" (i.e. instead) of foreclosing on
the loan when a borrower is unable to
continue repayments. In other words, the
borrower simply hands the property over to
the lender and walks away from the loan.
A borrower may agree to this if they don't
have much equity in the property and are not
likely to be able to make up their default
and continue making payments. A deed in lieu
of foreclosure agreement allows the borrower
to avoid the whole foreclosure process,
thereby saving legal fees, stress and
potential public embarrassment.
It also means the borrower will not have a
foreclosure recorded on their credit
history, which is almost certain to hinder
them in borrowing money in the future.
From the lender's perspective, a deed in
lieu of foreclosure saves both time and
legal fees. The sooner they can take
possession of the property, the sooner they
can sell it and recover their money.
A second benefit to the lender is the
potential to make a profit on the sale of
the property. If the lender is able to sell
the property for more than they are owed,
they get to pocket the extra funds.
A lender cannot force a borrower into a deed
in lieu of foreclosure agreement. Both
parties must consent before the deal can go
ahead, otherwise the lender must revert to
the normal process and procedures of
foreclosure.
Not all US states allow deed in lieu of
foreclosure, as there is an obvious
potential for abuse. In the past, some
lenders have been accused of engaging in
so-called "strategic foreclosure", coercing
uninformed borrowers into foreclosure and
robbing them of any equity they had built up
in the property.
Conclusion
Are you one
of the many that suffer from insurmountable
debt and wonder if bankruptcy is an option?
Give us a call at (203) 924-6700 or
contact us.
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