When a borrower becomes unable to make payments to a lender in concurrence with the agree-upon loan documents, he or she may relinquish the property to the lender instead of foreclosing on the property and settling debt. Completing this action instead of going through with foreclosure can have benefits for both the borrower and lender. But there are risks and costs involved. If you decide to pursue a service such as deed in lieu of foreclosure md or a deed in lieu of foreclosure in Virginia, you should know the steps to the process..
Difference Between Deed in Lieu and Short Sale
A Deed in Lieu of Foreclosure is often misunderstood as a “short sale”. for more information read, Short Sale vs. Deed in Lieu of Foreclosure
Oftentimes, a borrower is able to benefit in transactions where the lender pays for some or all of the transfer expenses, such as taxes, title policy, and recording costs. In the case of a sale of the property from the borrower to a third party, no sales commission will be incurred.
Benefits
A Deed in Lieu can save the parties time and expense involved in the foreclosure and receivership processes. A borrower may benefit in transactions in which the lender pays for part or all of the expenses of the transfer, such as transfer taxes, title policy and recording costs. Keep reading to learn about each of the steps involved in a Deed in Lieu of Foreclosure transaction:
Due Dilligence
The phrase “Due Diligence” refers to stages that the lender is required to go through before being able to accept a Deed in Lieu of Foreclosure. Due Diligence includes:
Property Review
Before continuing the process of Deed in Lieu of Foreclosure, a lender must understand all new duties and responsibilities incurred as a result of owning the property. Those interested in going through with a Deed in Lieu should be aware that the lender is required to review any contracts and agreements pertaining to the property. These may include management contracts, equipment leases, brokerage agreements, and service contracts. The lender will then determine whether the contracts are transferable and will then decide to either continue or terminate them upon closing.
Environmental Review
The lender must acquire an up-to-date Phase I environmental report for the property. Excluding some cases, a mortgage lender obtaining a property title either by Deed in Lieu of Foreclosure or by foreclosure may become an “owner or operator” liable for future costs and expenses of handling of hazardous matters.
Title Search
If you become interested in filing for a Deed in Lieu of Foreclosure, remember that a lender must conduct UCC financing searches on the property to determine all topics and liens affecting the property. It is important to remember that many lenders will not accept a Deed in Lieu if any secondary liens are revealed by the searches, even if it is likely that there will only be minimal time between the title being recorded and a later foreclosure dismissing these secondary liens.
Bankrupcty Considerations
Bankruptcy can often be closely related to Deed in Lieu of Foreclosure. Lenders will always consider particular debts that the borrower has, which is why bankruptcy concerns can influence your Deed in Lieu. Because of this, you should consult a bankruptcy lawyer before continuing with your Deed in Lieu.
For more information about the different types of bankruptcy, please visit our pages on:
Chapter 7 Bankruptcy
Chapter 13 Bankruptcy
Chapter 20 Bankruptcy
Negotiating the Deed in Lieu of Foreclosure
When negotiating a settlement agreement, it is important to note the motivations and positions of each party. A Deed in Lieu agreement is required under state law to be a voluntary transaction. A borrower has the right to buy back his property though full payment within a defined time frame. Only through a valid foreclosure or proper bank compensation can a borrower lose the right to redeem her property. Because negotiating a Deed in Lieu of Foreclosure is a complex process, it should be performed by a legal professional.
Settlement Agreement
It is imperative for the borrower and lender to document the transaction through a thorough settlement agreement. As a borrower, you will benefit most from a simple transaction that does not list items involving deed transferal in exchange for loan liability release. Any document agreed upon should insure that this transaction is in fact voluntary. Drafting your own settlement agreement is a complex task and not recommended.
Is Your Home About To Be Foreclosed On In Virginia, Maryland or Washington D.C.?
If you are concerned that you will lose your home you need to speak with an experienced foreclosure defense lawyer as soon as possible. Please contact us online or call our Vienna, Virgnia office directly at 703.991.7978 or our Rockville, Maryland office at 301.637.5392 to schedule your case consultation.
