What's the Difference Between A Foreclosure and a Deed In-Lieu of Foreclosure?

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Real Estate Agent with Rancon Real Estate

A few months ago, I had a call from a good client that I have helped buy and sell several homes. It was one of those calls that catch your heart and makes you want to put your arms around the family. They just can't make it any more - a job was lost, no insurance and everything was going from bad to worse. They couldn't afford their home and they owed more than it could sell for. 

I listed the home as a Short Sale. The market kept falling, more and more Short Sales and Foreclosures were appearing and fewer and fewer buyers were coming. We haven't been able to sell the home. :-(

Now we are looking a either Deed In-Lieu of Foreclosure or Foreclosure. Could someone tell me the disadvantages and/or advantages or each?

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Rainmaker
558,307
Maggie Dokic | Miami, FL | 305.81.HOUSE (46873)
eXp Realty LLC - Miami, FL
GREEN, CDPE, SFR, Pinecrest | Palmetto Bay |
Sandra, not that I'm an expert on either, but the deed in-lieu would be more appealing to the bank as they can save themselves the high costs associated with a foreclosure.  In turn, it may also make more sense for the homeowner.  Have you tried searching AR for some info?  So sorry for this family =(
Jul 22, 2007 11:22 PM #1
Rainmaker
1,173,612
Joe Manausa
Joe Manausa Real Estate - Tallahassee, FL
Tallahassee Real Estate
While I'm no expert either, The deed in-lieu is not a specifically-defined action, meaning, some banks will treat it one way, others another. I believe it can affect credit as strongly as a foreclosure, but not always.
Jul 22, 2007 11:35 PM #2
Rainer
2,305
Patricia Reid
EWM Realtors, Inc. - Davie, FL

My knowledge of a Deed in Lieu of Foreclosure is a means that is acceptable by the bank or lender because there is sufficient equity in the home.  The lender will not lose on the deal, and the property can be auctioned off on the courthouse steps.  While the seller may have his credit affected, it is not as bad as being foreclosed upon, as the bank has agreed to take back the property in lieu of foreclosing on it.  Why doesn't this owner rent out his house instead?

Jul 22, 2007 11:49 PM #3
Rainer
71,002
Thomas Weiss
Thomas R. Weiss - West Palm Beach, FL

A deed in lieu of foreclosure, is when a client falls behind and can show they have a hardship, in return they are voluntarily giving back the home in place of letting it go into foreclosure, it's the better thing to do if you can't make your payments and can't sell...

Tom Weiss

Jul 23, 2007 12:12 AM #4
Rainmaker
592,907
William J. Archambault, Jr.
The Real Estate Investment Institute - Houston, TX

Sandra,

The difference between Deed-in-lieu and foreclosure is that Deed-In-Lieu is voluntary and foreclosure is court ordered! The end results is the same you've had a foreclosure. Credit wise it's the same thing.

Why would someone do a Deed-in-lieu?

1. Poor advice and/or stupidity.

2. To end anxiety and leave the property on your own at a negotiated time, with out the Sheriff watching.

3. Liability!

A. Financially you lower the lenders expenses several thousand dollars.

 

B. Vacant houses are "attractive

nuisances," you're liable for anyone hurt on the property as long as you own it.

Foreclosure is foreclosure and should be avoided at all cost. If all else fails then it's time to talk to a well selected "Shark," real estate investor. The key is in who you are dealing with, the type of investor that says "sign the deed and be out by Sunday" is to be avoided. You want an investor that will close in escrow and bring your loan current at the closing!

You as their REALTOR® need to really analyze the property what is the true value? Why hasn't it sold? Would it sell if it were priced 6% less? What could the property be rented for? Has an NOD, notice of default been filed? Are they still dealing with the lender of is it a foreclosure service? Understand that the lender really doesn't really want the property!

I'm impressed that the people called you and even more so that you asked for help!

You need a local expert.

Good Luck!

Bill

William J Archambault Jr

The real Estate Investment Institute

http://www.reii.org

Jul 23, 2007 05:14 AM #5
Rainer
22,791
Sandra Williams
Rancon Real Estate - Temecula, CA

Bill, it is hard to believe how much of this is happening in our area of S. California. It  this point in time, we are marketing the home as a Short Sale for $489,900 and the owner's debit is $600,000 and we still don't have offers. (By the way, this is a great price for this home here.)

There aren't any people that specialize in these here. We are all just doing our best to help everyone we can. I am in constant contact with the lending bank - a first and second loan both at the same bank.

There is no equity in the home. An investor would be on the losing end if he took their loans and brought them current. There is no upside for him. If the bank would accept the Short Sale that might work but the value has dropped so severely, they would have to wait for the market to come back here.

Jul 23, 2007 05:35 PM #6
Rainmaker
592,907
William J. Archambault, Jr.
The Real Estate Investment Institute - Houston, TX

Sandra,

You don't mention if the seller is keeping the payments up or not. If the seller is still living in the home, if the seller still needs to live in the area the bank may not be to willing to help. Just having a loan in excess of the value is not the problem some might think, unless it's a very small bank. After all we're still writing new 125% LTV loans, their just not for the faint of heart.

It's exciting that there is a first and second. Even though they were originated and are being service by the same lender they may be owned by different investors. I suggest you read my article, Beat The Sharks It's not that long.

Why does the seller want to sell? Does he have other assets? What is the break down between the first and second are they up to date?

If the seller is just trying to cut their loss, forget this listing cancel the contract and go find some one deserving your help. A lot of people think they can stick the lender for their own convenience, but lenders only accept a short sale when it's in there favor. Many of these home owner may find that it would be cheaper to have honored the debt when the IRS gets through with them, they get taxed on every thing that's forgiven.

On the other hand if the people are in trouble, and need your help, this is stimulating and profitable work. Not your Mother's real estate, bur possibly your Grand Mothers.

My address is wja@reii.org or I can be reached at 702-516-1569, I'll ask you to call me back on my land line at 702-334-1041, but it's usually busey unless I'm expecting your call.

Bill

Jul 23, 2007 07:18 PM #7
Rainer
66,957
Dionne Morgan
Realty World Solano Realty - Vallejo, CA
Broker REALTOR ,GRI, e-PRO
Well it is a month later how are things going for your clients. I am so sorry that this housing market has came to this point. It was an accident waiting to happen. I am looking for a turn-around but I believe it has to start at the top.
Aug 16, 2007 08:37 PM #8
Rainer
2,603
Chris Carter
eVolV Equity - Roseville, CA

There is almost no difference. The Deed in Lieu simply saves the homeowner time and the bank money. It's about that simple. I think doing a deed in lieu is nothing more than giving up.

Short refinances are the way to go in this market if able to qualify. If not, then a short sale is ALWAYS better than a foreclosure and a Deed in Lieu which is basically the same as a foreclosure.

Feel free to contact me for assistance.

Oct 31, 2008 11:15 AM #9
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Rainer
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Sandra Williams

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