Is A Deed In Lieu Of Foreclosure A Smart Option?
A deed in lieu of foreclosure is one option for a distressed homeowner. Is a deed in lieu the best option is the question that needs to be answered. When a homeowner signs over ownership to their property in a deed in lieu transaction, they are giving legal ownership back to the lender in lieu of the lender foreclosing on their security interest ( note that nothing has been said about the note or debt).
When a homeowner in Florida gets into financial trouble, some really tough decisions have to be made. The first decision is what to do with their home or investment property. This is where the choices really need to be examined
Normally, a Florida homeowner has 4 choices:
1. Do Nothing and let the Foreclosure happen.
2. Short Sale
3. File Bankruptcy ( Save or Surrender the Property)
4. Deed In Lieu
This blog will focus solely on the Deed in Lieu Option.
The good part of a Deed In Lieu transaction is that it is consensual. This is the NICE way of conducting business because both sides are agreeing to the transfer of the property and the release of the lien. That is about as far as it goes in most cases. Usually, the homeowner wants to talk more about the debt and the lender deflects that conversation or postpones having that conversation at all until the ink on the Quitclaim deed is dry.
But, eventually, the question is going to come up about a deficiency judgment. A deficiency judgment is the topic of an anther blog.
Normally, in order for the deed in lieu to be approved, there must be some type of hardship (loss of job, divorce, etc.) before the creditor will consider taking the property back and there cannot be any other liens on the property. In other words, no second mortgage or HOA liens, etc. This requirement is usually the death knell of many attempts at a Deed In Lieu transaction.
Some of the lenders also have their own checklist items like the property have to be on the MLS for at least 60-180 days. Also, one company asked if the homeowner had exhausted all other financial resources. I don't know what that means. I can only speculate to say that they had depleted their savings accounts and liquidated their 401Ks.
These requirements kind of take away the consensual nature of the deed in lieu process.
Please note that the Deed in Lieu process may create tax liability for the homeowner, so please consult a reputable tax professional before making any decisions like doing a deed in lieu of foreclosure.
This post was submitted by Carmen Dellutri, Esq., founder of The Dellutri Law Group, P.A. Currently, the firm has offices in Port Charlotte, Fort Myers, Naples and Sarasota. Mr. Dellutri also sits on the Board of American Board of Certification. Mr. Dellutri is also one of the founders of the Bankruptcy Law Network, Debt Law Network, Credit Law Network, and Mortgage Law Network. Mr. Dellutri also writes for the firm's personal injury litigation blog. Mr. Dellutri also writes for the firm's other blogs: www.faircreditreportingactblog.com and www.fairdebtcollectionpracticesactblog.combankruptcy blog.
