Are you trying to avoid foreclosure? Are you unable to maintan your home as you don’t qualify for a modification? Are you unable to sell you home?
A deed in lieu of foreclosure may offer you the solution. A deed in lieu of foreclosure or "DIL" is a way that a mortgagor (you the borrower) can voluntarily deed the property as collateral in exchange for a release from all of your mortgage’s obligations. The Department of Housing and Urban Development (HUD) and many others lenders have strict qualifications and pre-requisites, so you want to make sure that a DIL applies to your situation.
Generally speaking, this may be a mortgagor option if you:
- Are unable to make the monthly mortgage payments;
- Do not qualify for any other HUD Loss Mitigation option;
- Are not attempting to default on the mortgage to qualify for this option;
- Are more than 31 days delinquent when the DIL Special Warranty Deed is executed;
- Do not own any other FHA-insured mortgage or mortgage held by HUD;
- Can show evidence of reduced income or increased living expense;
- Can show evidence which verifies you need to vacate the property;
- Can show evidence that utilities, taxes, and HOA dues are paid;
The Deed in Lieu Foreclosure Agreement
If all of the requirements are satisfied, the mortgagee will develop a written Deed-in-Lieu of Foreclosure Agreement. This contract will be signed by both the mortgagor and mortgagee and have all of the terms by which the deed will be accepted. The main points of the agreement are customarily:
- The transfer date of property to mortgagee;
- A notice to the mortgagor of possible tax consequences by using the DIL option;
- The mortgagor will not be liable for deficiency judgments if they comply with the requirements of the agreement;
- The mortgagor’s statement of the general physical condition of the property when conveyed;
- The mortgagor will convey property vacant and free of personal property unless there is a HUD-approved exception; and
- The specific dollar amount that is agreed to (the agreement’s consideration).
The mortgagee is allowed to pay up to $2,000 in compensation to the borrower. This doesn’t happen until you vacate the property. With exceptions, the DIL must be completed or foreclosure initiated within six months of the date of default. However, if the DIL follows an unsuccessful special forbearance agreement or the pre-foreclosure sale program, then the DIL has to be completed or foreclosure initiated within 90 days of the failure. Also, with some exceptions, the property must be owner-occupied; it can’t be a “walk-away” or investment property and not purchased as a rental investment or used as a rental for more than 12 months.
Fannie Mae and many financial institutions have these programs as well. Make sure that a DIL applies to your situation. The attorneys at BoltNagi’s Real Estate and Financial Services Practice Group have considerable experience and resources to assist you with your mortgage situation and answer your questions about a DIL. Please don’t hesitate to contact BoltNagi PC today (Telephone 340-774-2944).