Each Fridays' Blog will provide (hopefully) useful information regarding the preforeclosure, and foreclosure process. NJ is a judicial foreclosure state. Your state's laws, customs, and practices may differ. I'm not an attorney, and this isn't intended to be anything other than my opinion.
Shortly after a (NJ) homeowner misses the third, consecutive, monthly mortgage loan payment, he or she may receive from the mortgagee what's known as a Letter Of Intent (to foreclose). I say may because a bankruptcy petition can impede the lender's collection process. This LOI is the lender's first step in the implementation of a formal foreclosure proceeding. (next Fridays' FYI: What is a Letter of Intent?) Sometimes, the Borrower is encouraged to contact the lender to discuss a list of non-foreclosure alternatives including, but not limited to a Deed in Lieu of Foreclosure, or, DIL.
What is a DIL? According to the glossary (Short Sales, An Ethical Approach):
A Deed In Lieu of Foreclosure is used by a homeowner to voluntarily convey the title of his/her property to the mortgagee/beneficiary (lender) to avoid the negative credit consequences of a foreclosure. Lenders are generally reluctant to accept a DIL unless title is free and clear of any other encumbrances junior to theirs and the owners execute an estoppel affidavit acknowledging they are acting voluntarily, with informed consent.
Why would a lender accept a DIL? By accepting a DIL, the lender doesn't have to go through a lengthy and expensive foreclosure process which, in NJ, can take from 8 to 18 months.
A borrower would benefit, too, because a DIL is usually given to the lender in exchange for the lender releasing the borrower from a deficiency judgment.
In my experience, DESPITE what is implied by the lender in its list of non foreclosure alternatives, lenders rarely agree to accept a DIL, but instead require a homeowner first try to sell the property utilizing the services of a licensed real estate broker. If anticipated proceeds from sale aren't adequate to satisfy the mortgage(s), lenders will usually favor a preforeclosure short sale to accepting a DIL.
So, when your prospective listing Client tells you they will avoid foreclosure by simply deeding the house back to the bank... you can tell them it's your understanding from good authority that lenders rarely accept them, and to contact our office. We'll give them the straight poop on Deeds in Lieu, and other conventionally accepted non foreclosure alternatives. Then, get ready to take the listing!
SPOCH, a non profit organization, offers preforeclosure and preforeclosure short sale transaction support anywhere in the USA.
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