Borrowers Signing Up for Deed-in-Lieu in Record Numbers

As part of Obama's Home Affordable Foreclosure Alternatives (HAFA) program, Deed -in-Lieu was included as an option.

First of all, what is a deed-in-lieu?  Deed-in-lieu is one of the oldest concepts in real estate.  Basically this is when the borrower voluntarily transfers the property back to his/her creditors versus  the creditor jumping through all the hoops in foreclosure.

As of this writing, most banks want the borrower's to first attempt a short sale because the bank doesn't want to own the property.  Banks don't want to own the property because then they have to maintain the property, pay the taxes, pay the HOA, pay the utilities, etc.   Some folks have estimated that a banks holding costs on a bank owned property may be as much as 1% to 2% of the home value per month.  We are currently seeing arrangements from the banks that allow us 90 to 120 days to market and sell a home as a short sale, but if it doesn't sell in that time a deed-in-lieu is accepted.

However, with HAFA some banks are taking steps to avoid foreclosure and avoid the hassle of short sale.  Some banks are offering deed-in-lieu as a quick and easy way to be done with a property.  It was reported that Bank of America has mailed out 100,000 deed -in-lieu solicitations to customers 60+ days behind on their payments.  BofA is also offering customers cash incentives anywhere from $3,000 to $15,000 and is getting a strong response.

The main benefit to borrowers and the bank is time.  It is estimated that a bank can do a complete deed-in-lieu in 30 to 45 days.  The bank avoids the legal expense of foreclosure, damaged properties, etc and the borrower can be done and move on with their lives.

Fico is reporting that a deed-in-lieu  and short sale are treated the same in the FICO scoring model.  Fannie may has recently stated that homeowners that use this technique may be able to qualify for another home mortgage in two years versus the current four year time frame.

No matter what, homeowners of distressed properties should consult with experienced Real Estate Agents to help them in time of need.  Realtors are the solution to the housing market recovery.