I was thinking about a webinar I attended a while ago that was held by a hard money lender from the West Coast. Everything that he said was typical of most hard money programs and the underwriting guidelines they use that would be presented to potential mortgage investors UNTIL he started talking about the borrowers signing a Deed In Lieu. If you don’t know what a Deed In Lieu is, it’s a document signed by a borrower that will be recorded in the county where the property is located to avoid the foreclosure process. The borrower, by signing the Deed In Lieu, deeds the property back to the lender “in lieu” of a foreclosure. These documents are ONLY to be used when foreclosure is imminent. This is where I had a problem with this presentation.
This particular lender informed everyone that his extra protection for the mortgage investor was to have the borrower sign the Deed In Lieu at the same time they signed their loan documents... what? Over the years I’ve spoken to many attorney’s when I hear about this practice by others, NOT US, and they’ve said this is a big no no!! You cannot allow a borrower to sign away their legal rights to the full foreclosure process and their ability to redeem the mortgage.
The pitch in this webinar was the lender's ability to take back the property quickly through this “pre-signed” Deed In Lieu, which could be recorded as soon as the borrower was late on his payment. Regardless of whether the borrower agrees to it or not, I’m sure a judge would come down heavily on an individual or company that was convincing borrowers to waive their legal rights. I wonder how many borrowers just walked away from their homes because they prematurely signed a Deed In Lieu and were convinced they had already given up their rights to a foreclosure?
So the next time you hear anyone suggesting this practice, avoid any dealings with them whatsoever. Their problems will become your problems.
LOL Bad idea!
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