Deed in Lieu of Foreclosure
A deed in lieu of foreclosure can be an effective alternative to foreclosure. This is a process in which homeowners or other real property owners voluntarily transfer their real property over to their mortgage lender after defaulting on their mortgage loans in order to avoid an involuntary foreclosure sale of their home or other real property.
When other options fail or are simply not possible, a deed in lieu may be the only way a homeowner or other real property owner can avoid having a foreclosure sale placed on their credit report. Such a blemish will likely have a significantly greater negative impact on debtors’ prospective ability to rebuild their credit scores on file with the 3 national credit reporting agencies (Trans Union, Equifax, and Experian) than the filing of a Chapter 7 and, to an even greater extent, the filing of a Chapter 13 bankruptcy petition.
What Happens After a Deed in Lieu of Foreclosure?
After the debtor/borrower surrenders ownership of the secured property by way of a deed in lieu of foreclosure, the mortgage lender will attempt to sell the debtor's property as quickly as possible in order to recover all or, as much as possible, of the entire amount owed.
A deed in lieu of foreclosure is simply the name of the document used to transfer ownership of the real property from the property owner/borrower to the mortgage lender. It is important for borrowers/property owners to be aware that mortgage lenders are typically unable to recover the full amount owed to them under the terms of the defaulted mortgage loan through this transfer and the subsequent "distressed sale" of the mortgaged property to 1/3 party.
The mortgage and related loan documents executed by borrowers no doubt give the mortgage lender the right to sue borrowers for what is called a deficiency judgment, this sum of money represents the balance due the mortgage lender on the defaulted mortgage loan after the property is eventually sold to a third party.
Mortgage borrowers should assure that their mortgage lender cancels all/any remaining debt due on the underlying mortgage loan in return for the borrower voluntarily transferring title to the property pursuant to the "Deed in Lieu". The mortgage lender should have no problem doing this since it will likely be spared from the significant expense, delay and hassle of having to pay their attorneys to foreclose on the subject property.
If the lender does not agree to waive any unpaid balance due on the mortgage, then borrowers may have to deal with a deficiency lawsuit filed against them by their lender after the transfer of title to the property is completed.
Looking for a Lawyer to Help With a Deed in Lieu of a Foreclosure Case in New York or New Jersey?
An attorney experienced in personal bankruptcy should have much more leverage in negotiating a waiver of any potential deficiency lawsuit by the lender than would a borrower communicating directly with the lender.
If a deed in lieu of foreclosure is an option that you would like to explore further, please call or contact our firm today for a free consultation.
From his office in Hackensack, New Jersey, Attorney Alster's services extend throughout the state of New Jersey, as well as New York. Some areas he serves in New Jersey are Passaic County, Bergen County, Hudson County, Essex County, and more; in New York, he serves Rockland County, Queens, and the Bronx.