An Interesting Alternative to Foreclosure: A Deed in Lieu of Foreclosure

By
Real Estate Agent with eXp Realty of California Silicon Valley Probate, Trust, and Investment Sales B.R.E. 01191194

 

There is a new (actually renewed ) option for underwater homeowners who cannot, or do not want to pay their mortgage.  A deed in lieu of foreclosure is an agreement between the bank and the borrower.  The borrower gives the home back to the bank and the bank does not have to go through the foreclosure process.  It can be a win win situation for both the bank and the borrower.

The government HAFA program is the major force behind this renewed option.  If a borrower does not qualify for a loan mod, or gets a mod and is not able to make the payments, this government program encourages the banks and the borrowers to pursue either a short sale or a deed in lieu.  By encouragement I mean gives financial incentives, in order to decrease the number of foreclosures, vacant homes, and neighborhood blight. 

Under the HAFA deed in lieu program the borrower agrees to give the home back to the bank and in exchange the bank helps with some relocation costs and also agrees not to pursue a deficiency judgment.   Depending on the state the borrower lives in and they type of loan, after a bank forecloses or agrees to a short sale they still may have the right to go after the borrower for the amount of the money the bank lost.  HAFA stops that ability of the bank to pursue a deficiency.

In addition to the halting of any deficiency judgments, the privacy afforded by not being foreclosed and evicted, and the help with re-location costs (Bank of America is offering $3,000-$15,000) borrowers who agree to a deed in lieu can purchase another home after 2 years instead of the 5-7 after a foreclosure.

So what is the catch?  The pesky second loan once again can get in the way.  If the borrower has a HELOC or second loan on the property this process does not work. In these cases the borrower must try for a loan mod, do a short sale, or be foreclosed if he/she can not pay the mortgage.

In California as well as other high priced states many homeowners have at least two loans on their homes. The cost of the home required so much down payment that many borrowers used a second loan in place of, or in addition to the amount they had for their down payments.  As a result the option of a deed in lieu of foreclosure is not an option.

If you have any questions about short sales, foreclosures, or any other real estate issues just ask. 

Marcy Moyer
Keller Williams Realty
650-619-9285

*thanks to Irving Housing Blog for the image

Posted by

Marcy Moyer eXp Realty of California  Specializing in Probate and Trust Sales, and Rental Investment Properties

 

Comments (8)

Tiffany Torgan
Harcourts Prestige Properties of La Jolla - La Jolla, CA
Featured on HGTV's New Show! How Close Can I Beach

Hi Marcy, great post! It looks like you worked really hard on this. I will re-blog and suggest!

Jul 02, 2010 06:05 AM
Jen Wing
JPW Field Inspections - Chico, CA
Field Inspections Since 2007

Great Picture!  And great information.  I had not heard of this before-I will pass it on.

Jen Wing

Jul 02, 2010 06:09 AM
Erika Rogers
Red Rock Real Estate ~ Southern Utah's Largest Independent Brokerage - Saint George, UT
St George Utah Real Estate & Relocation Specialist

Hi Marcy, thanks for clarifying what the "deed in lieu of" actually is.  It sounds like a good alternative, unfortunately so many borrowers in my area have that pesky second loan.

Jul 02, 2010 06:10 AM
Judith Sinnard
SMARTePLANS; Houston, Texas - Houston, TX
The SMARTePLAN Lady

Marcy, a really good explanation from the homeowner's perspective of "what they're looking at" when they compare and contrast these two options. Great info, thanks!

Jul 02, 2010 06:11 AM
Marcy Moyer
eXp Realty of California Silicon Valley Probate, Trust, and Investment Sales - Mountain View, CA
Probate, Trust, and Investment Specialist

Thanks everyone. I think that this is something that both homeowners and realtors should know about so everyone can make an informed decision.

Marcy

Jul 02, 2010 07:06 AM
Joetta Fort
The DiGiorgio Group - Arvada, CO
Independent Broker, Homes Denver to Boulder

I'll bookmark this one, for sure. And I got a big laugh out of the graphic!

Jul 03, 2010 04:15 AM
Marcy Moyer
eXp Realty of California Silicon Valley Probate, Trust, and Investment Sales - Mountain View, CA
Probate, Trust, and Investment Specialist

Thaks Joetta,

It sort of reminds me of an Andrew Wyeth.

Marcy

Jul 03, 2010 04:20 AM
Dawn A Fabiszak
Private Label Realty ( Denver metro area, Colorado - Aurora, CO
The Dawn of a New Real Estate Experience!

Marcy ~ I have seen a few deeds in lieu here in Denver.  It is a great option, if available.  That really is a great graphic!!  Enjoy your weekend.

Jul 04, 2010 03:08 AM

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