In Michigan, as with all other states, a deed in lieu foreclosure deal occurs when a given lender agrees to accept the deed or title to a property owned by a homeowner, in exchange for cancelling debts secured to a given homeowner property. This process is used by lenders to prevent incurring costs during a fully-fledged foreclosure, while obtaining the same result, which is ownership of the property securing a given home loan.
The Beginnings of Deed in Lieu of Foreclosure in Michigan
A deed in lieu transaction starts once a homeowner falls behind on their current home loan payments. The homeowner, who at this point is facing foreclosure, will approach their lender and request some form of foreclosure relief. This request may eventually be one involving deed in lieu of foreclosure. Most lenders have specific practices concerning accepting deed in lieu deals, including timeframes requiring a homeowner be a set amount of time behind in meeting payment obligations, typically thirty to ninety days, depending on the type of security instrument securing a loan.
Once a the required time periods pass and a homeowner has met other lender requirements, the homeowner will formally suggest deed in lieu of foreclosure to their lender, typically in the form of a hardship letter. The lender, from this point, must determine whether a given deed in lieu deal will be in their best interest, given the potential losses they may realize through foreclosure sale or the potential gains they may benefit from offering homeowners alternative foreclosure prevention methods. Based on the case-specific figures concerning a home loan, as well as the estimated broker’s price option on the given property, a lender will make a financially based decision on whether to accept a homeowner’s voluntary request for deed in lieu.
The Lender Decision to Approve Deed in Lieu Requests
Every deed in lieu deal is subject to lender approval. The following lists some considerations lenders will make when determining whether to approve a deed in lieu request:
- Does the property in question have junior liens attached to it
- What is the broker price option and fair market value of the home, versus the amount of debt outstanding in a given home loan
- Has the homeowner attempted other foreclosure prevention options, or in essence, are there other foreclosure prevention options still available that will mitigate more loss for lenders than deed in lieu
- What are the estimated losses a lender risks realizing, should a given home foreclose and be sold at auction
Finalizing a Deed in Lieu of Foreclosure Deal in Michigan
Should a lender approve a deed in lieu deal, homeowners should be wary of accepting the initial terms and conditions attached to the lender deed in lieu offer. Consulting with an attorney at this point, if you have not already done so, is important. Most mortgages involved in deed in lieu deals contain a deficit amount, should the home be accepted even at fair market value. This deficit amount may be subject to deficiency liens, in certain cases. In the negotiated deed of lieu agreement, a homeowner must ensure they are signing an acceptance agreement that releases the homeowner from future liability for deficiency amounts. Without this protection, depending on the case, homeowner’s may be afforded better protection through foreclosure in the state of Michigan.
Getting Legal Help with Deed in Lieu of Foreclosure in Michigan
Any proposed deed in lieu deal will be part of a prolonged foreclosure prevention process undertaken by homeowners and their lenders. By consulting with an attorney as soon as default sets in, most homeowners will be able exercise all applicable foreclosure alternative options and may be able to stem the loss of their home. In other instances, homeowners should use legal representation if seeking a deed in lieu deal from their lender, as well as to ensure the deed in lieu deal specific to their home loan is in their best interest.
