Deed in lieu is one option offered to borrowers who have defaulted on their home mortgage loan. Instead of commencing with costly foreclosure, lenders allow borrowers to return the keys to their homes and walk away. The homeowner is not entitled to proceeds made from the sale of the property and is required to forfeit all invested funds.
Mortgage lenders are not required to enter into a deed in lieu of contracts. You can read about all that as you get a Personal Loan Singapore. This is how you can manage the terms of your loan and the consequences that you face if you are unable to pay your loan. Those that do utilize this method to reduce costs associated with the foreclosure.
In 2007, mortgage financier, Freddie Mac, stated each foreclosure costs banks an average of $60,000. Depending on the state of residence, the cost of deed in lieu of property transfers hovers around $1500 and $2500. This cost covers the expense of Documentary Stamp Tax which is payable by the borrower.
Using deed in lieu of foreclosure can help banks avoid expensive legal fees and court costs and allow borrowers to avoid the stress and embarrassment of the foreclosure process. While it is never easy to lose your home, deed in lieu can make it a little less painful.
With that being said, deed in lieu can wreak havoc on credit ratings which can take up to ten years to overcome. Regardless of the name, foreclosure is a foreclosure in the credit world. It doesn’t matter if you willingly returned your home to the bank or left kicking and screaming as the Sheriff wrapped tape around your foreclosed property. Debtors can experience a decrease of 100 points or more from their FICO score, along with tax liens and deficiency judgments.
Before agreeing to enter into a deed in lieu of foreclosure, debtors should determine whether their lender will pursue them for the outstanding balance. Many banks hold borrowers responsible for the deficiency amount between the loan balance and sale price. This can amount to several thousand dollars and take years to repay.
Other lenders accept the sale price as payment in full; allowing borrowers to walk away without owing additional funds. This type of deed in lieu is referred to as ‘Payment in Full without Pursuit of Deficiency Judgment’ and is the preferred method. If your lender plans to obtain a deficiency judgment, obtaining legal counsel is strongly recommended.
Debtors must meet certain deed in lieu of foreclosure eligibility requirements. First and foremost, the foreclosure property must be the borrower’s primary residence. Homeowners are prohibited from vacating the premises or leaving the home empty during deed in lieu negotiations.
Borrowers must be delinquent with mortgage payments by a minimum of 31 days before a deed in lieu will be considered. Mortgage arrears caused by long-term unemployment, divorce, loss of a spouse, employment transfer or military deployment are looked upon more favorably than delinquency caused by reckless spending habits.
Deed in lieu transactions is typically handled by bank loss mitigators. These employees carry a heavy workload and are responsible for loan modifications, mortgage refinances deed in lieu, mortgage forbearance agreements, foreclosure, and short sale real estate. It is not uncommon for loss mitigators to handle more than 100 cases on any given day.
Loss mitigators do not make final home loan decisions. Instead, they review borrowers’ financial status and make recommendations to the lender. In most cases, deed in lieu is offered as a last resort. Banks take immediate possession of the property upon signing the deed in lieu of foreclosure contract.
While deed in lieu may sound inviting, it is crucial to obtain advice from a real estate lawyer prior to signing documents. Homeowners who do not thoroughly understand the process could end up owing thousands of dollars on property they no longer own. Get the facts to determine if the deed in lieu is the best financial option.