Deed in Lieu of Foreclosure: Giving up the keys
Just want to hand in the keys and walk away from your upside-down loan? Many of our clients – often facing impossible monthly payments or gut-wrenching shortfalls on their loan-to-value ratios – just want to turn in the keys and walk away from their loans. “What about a deed in lieu?” they ask.
That’s usually when I have to deliver the bad news. Not only are DIL’s hard to negotiate unless you’re already in foreclosure proceedings, they’re often impossible to get nowadays just because the banks already have too much undervalued real estate. They don’t want your house – they want your money. And taking your house through foreclosure is mainly a way to motivate you to cough up some of that cash.
Lenders offer Deeds in Lieu as part of a bait-and-switch
Florida attorney Jonathan Alper reports that he recently spotted a bait-and-switch (my words, not his) on a supposed DIL settlement offered to one of his clients. Alper reports:
When I looked at this client’s “deed in lieu” I found that the lender did not include a release of liability, and in fact the document referred to the borrower’s continued liability for a deficiency. This client had negotiated a deed in lieu of foreclosure [but] not a deed in lieu of deficiency liability. Also, by surrendering title to the property without the bank having to foreclose, the client gave up all the defenses available in a foreclosure action which he could use as leverage to negotiate a complete release.
[emphasis mine - Ed.] Alper offers this bit of advice, which everyone trying to negotiate a DIL should take to heart:
If your mortgage lenders offers you a deed in lieu make sure it’s the real deal. You give them the property back and they release you from any further liability. Anything less may be a trap.
Admiral Ackbar couldn’t have said it better.
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