What is a Deed-in-Lieu of Foreclosure? - YouTube

Hello and welcome to our Freebie Friday video. It's Sade here. I've been requested

that i talk a little bit about the Deed-in Lieu of Foreclosure

and the Deed-in Lieu of Foreclosure is essentially what it sounds like

It says that " instead of a foreclosure, you give me a deed and then I

wouldn't foreclose." The lenders are usually the ones that offer this kind of

thing to homeowners that are facing a difficult time making their mortgage

payments and maybe they don't have any other options like a loan modification

because maybe there is no income at all coming in. The lenders would approach

the homeowner and say "Hey, why don't you give me the title the full title to the

property back and then I will in exchange, not do a foreclosure on the

property, and then you can just walk away. Well, this sounds good on the surface

especially for somebody that is simply trying to move on without worrying about

a deficiency judgment. Deficiency meaning that maybe the amount that's owed at the

time might not be covered when the foreclosure takes place. So that means

normally you would owe the lender some money. If they did a foreclosure for instance

and were able to get $200,000 but you owe

$250,000 on the loan,

some of the times, the lenders will come after you for the balance of $50,000.

So I guess homeowners tend to think that "Okay, well, this isn't so bad.

I don't expose myself to anything else. I'm tired. I'm emotionally exhausted.

I just need to get out from underneath this."

And so a lot of the times they would accept the Deed-in-Lieu of Foreclosure.

Well, in a market such as in Austin, in the Austin

area or generally all around here in the big cities in Texas, the Real Estate

market is holding up very well. So most of the time the homes are not upside down

unless somebody has failed to make mortgage payments

for years and years and years and then that could happen. But for most

people they've only missed maybe a handful of payments, maybe a year worth

of mortgage payments. And so, they do want to get away from the whole situation and

think that the Deed-in-Lieu of Foreclosure is a very attractive option.

The reason why we don't like it is that the homeowner does not walk away with anything.

The homeowner walks away with no cash in

their pocket. Unless of course the lender would offer them a relocation sort of

incentive, which is similar to Cash-for-Keys. It's what they call it. So they'll

offer anything up to $10,000. Usually it's about three to four thousand dollars

for the family to move. And they would agree to give a number of days to allow

that to happen, once they've done the the Deed-in-Lieu of Foreclosure. And the

homeowners have to sign this agreement before the lender would agree to the

Deed-in-Lieu of Foreclosure. And like I said, in exchange the homeowners walk

away free and the lender gets back the title. It's almost like a voluntary

repossession if you think about it. And we don't like it because in a strong

market, the homeowner should be able to place that house for sale privately, and

maybe they can make more money from that kind of sale, and then they can actually

walk away with some money in their pocket for their family. And also, the

other reason I don't like it is because the Deed-in-Lieu of Foreclosure even

though it's not an actual full-blown foreclosure, it does still show up on

your credit report and it would affect credit decisions regarding you and maybe

your spouse - if your spouse is also on the loan. And so that's why we don't like it.

And of course a private sale would probably be more attractive to most

people because you can control the terms and you can have a little bit more time.

And I think the lenders like the Deed-in-Lieu of Foreclosure because they can

control the time too because if somebody keeps saying "Well, I'm going to put it on

the market", well, a lot of homeowners would not tend to do that. They just get

complacent or comfortable, and of course they're not making mortgage payments in

that time period. So the lenders prefer to get something going really quickly

rather than wait on the promise of the homeowner saying that

"I'm going to sell it, "I'm going to sell it" and then before you know it

6 months have passed, and then a year has passed

and the lender is not getting any payments at all.

So that's my quick overview of it. If you have any specific

questions for your situation, let me know and I'll be happy to address that

either directly with you on the phone, or you can just send us a message on the website.

And as always, have a wonderful weekend and I'll talk to you next time.