Practical and Legal Perspectives on Deed In Lieu Transactions

When a customer defaults on its mortgage, a loan provider has a variety of remedies available to it. Over the last few years, lending institutions as well as customers have progressively picked to pursue alternatives to the adversarial foreclosure process. Chief among these is the deed in lieu of foreclosure (referred to as a "deed in lieu" for short) in which the lending institution forgives all or most of the debtor's obligations in return for the debtor voluntarily handing over the deed to the residential or commercial property.

During these difficult financial times, deeds in lieu deal loan providers and debtors numerous advantages over a traditional foreclosure. Lenders can reduce the uncertainties fundamental in the foreclosure process, minimize the time and expense it requires to recuperate possession, and increase the probability of getting the residential or commercial property in much better condition and in a more seamless way together with a correct accounting. Borrowers can avoid pricey and protracted foreclosure battles (which are generally not successful in the long run), handle continuing liabilities and tax implications, and put a more favorable spin on their credit and reputation. Even so, deeds in lieu can also present substantial dangers to the celebrations if the concerns attendant to the procedure are not completely considered and the documents are not appropriately prepared.
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A deed in lieu ought to not be considered unless a professional appraisal values the residential or commercial property at less than the remaining mortgage responsibility. Otherwise, there is the threat of another creditor (or trustee in bankruptcy) claiming that the transfer is a fraudulent conveyance and, in any case, the borrower would obviously be hesitant to relinquish a residential or commercial property in which it may stand to recover some value following a foreclosure sale. Also, a deed in lieu transaction ought to not be required upon a debtor