As its name implies a deed in lieu of foreclosure, sometimes referred to as a voluntary surrender, is an agreement by the lender to accept title to the property in lieu of foreclosing on a homeowner who has defaulted in his mortgage. Each lender’s process of reviewing a deed in lieu of foreclosure request varies, but the following is a basic overview of how the process works.
1. Borrower Has A Financial Hardship
In most instances, a lender will not consider a deed in lieu of foreclosure unless the borrower can demonstrate a financial hardship. As a part of his request for a deed in lieu of foreclosure, a borrower must write a hardship letter which sets forth why he is behind on his mortgage payments and why he can no longer afford to make his mortgage payments. Acceptable hardships include:
- Unemployment;
- Underemployment;
- Illness;
- Divorce; and
- Death of a spouse or co-borrower.
The borrower must provide the lender with documentation that supports his claim of financial hardship. Among the documents the lender may want to review are:
- The most recent tax return;
- The most recent month’s pay stubs;
- A financial statement or budget showing the homeowner’s monthly expenses; and
- Bank statements.
2. Broker Price Opinion
Once the borrower requests a deed in lieu of foreclosure, the lender must evaluate the property. This evaluation entails determining the market value of the property. Most lenders will order a broker price opinion (BPO) which is basically a mini appraisal.
3. Title Search
As a part of its evaluation of the property, the lender will have an attorney or title examiner conduct a title search. The title search will identify any subordinate liens against the property. The lender will only agree to a deed in lieu of foreclosure if there are no subordinate liens or if the subordinate lien holders agree to release their liens on the property.
4. The Decision
If the lender refuses to accept a deed in lieu of foreclosure, the homeowner must pursue other options to avoid the foreclosure or simply let the lender proceed with the foreclosure. On the other hand, if the lender agrees to accept a deed in lieu of foreclosure, the homeowner will have to sign a number of documents.
- Acceptance Agreement – This agreement sets forth the terms of the agreement between the lender and the homeowner and may include provisions addressing whether the borrower will be released from any further liability for the loan and whether the lender has the right to seek a deficiency judgment.
- Deed – The borrower will sign a deed which transfers ownership of the property to the lender.
Getting Legal Help
No homeowner should attempt to negotiate a deed in lieu of foreclosure without the assistance of an experienced foreclosure attorney. A qualified foreclosure attorney understands how foreclosure laws work and can use various forms of leverage to get your lender to agree to accept a deed in lieu of foreclosure. Additionally, a foreclosure attorney will ensure that your rights and interests are protected and that the acceptance agreement does not contain any provisions that may harm your ability to move forward with your life after signing the deed in lieu of foreclosure.
