In Florida, much like other states across the United States, a foreclosure prevention alternative available to certain homeowners might be deed in lieu of foreclosure. Deed in lieu of foreclosure involves a homeowner’s lender cancelling mortgage obligations when a homeowner voluntarily transfers the title of a home back to the lender. Though the decision to engage in a deed in lieu transfer with your lender is voluntary, not many homeowners will be able to do so, as these deals depend on a given lender agreeing to do a deed in lieu with an individual homeowner on a case-by-case basis, often as a last resort before foreclosure itself.
Establishing Eligibility for Deed in Lieu Deals
The ability to do a deed in lieu of foreclosure deal with your lender is decided on an individual case-by-case basis. Through negotiations with your lender, a homeowner will have to forward the lender a hardship letter requesting a deed in lieu deal. However, the following elements may dissuade a lender from approving such a request, including:
- If a given mortgaged property has other liens and loans secured to the property, such as second mortgages, government tax liens, or others, the lender will most likely not agree to a deed in lieu
- If a homeowner has other foreclosure prevention options available to them, the lender will most likely deny a deed in lieu request until all other alternatives are explored
- As noted above, the last required alternative to deed in lieu in most cases involves a homeowner placing their home on the market for a period of at least ninety days, which can at the very least, present the lender and homeowner the opportunity to do a short sale deal
In most deed in lieu cases, a mortgage will be underwater, or the homeowner will owe more in mortgage debt than the actual fair market value of a home. This means lenders will lose out financially, even if a home sale at fair market value occurs. Furthermore, lenders accepting deed in lieu deals are now faced with selling another property, which is most likely in addition to many others currently. From a lender’s perspective, the only reason to do a deed in lieu deal will be to prevent the costs and possible losses realized during a foreclosure sale versus the eventual sale after a deed in lieu deal.
Caution for Homeowners Considering Deed in Lieu
If a homeowner is able to obtain a deed in lieu deal with their lender, Florida foreclosure laws, noted in Florida Statutes Chapter 702, allow deficiency judgments for any deficient sum owed once a home has been turned over to a lender at the valuation of its fair market price. By using an attorney, the vast majority of homeowners can include what is known as “no deficiency” clause in their deal, which prevents lenders from taking action to collect amounts unpaid during a deed in lieu deal.
Another consideration for homeowners is the ability of the IRS to tax forgiven debts related to a mortgage in a deed in lieu deal as taxable income. Per federal legislation, homeowners are protected from tax liability on deed in lieu debt forgiven until the end of 2012.
Credit reporting on deed in lieu of foreclosure also presents complications for homeowners. In many cases, unless worked out beforehand with an attorney, the deed in lieu deal is reported as repaid with forgiven debt, which can damage a one’s credit report as badly as a foreclosure in some cases.
Getting Legal Help with Deed in Lieu of Foreclosure in Florida
Each lender in the state of Florida adheres to a different policy on approving deed in lieu deals with struggling homeowners. Having an attorney with experience in foreclosure prevention cases negotiate the ability to do a deed in lieu deal with your lender is helpful, as lender’s decisions regarding a given deed in lieu deal are made on case by case basis.
