Practical and Legal Perspectives on Deed In Lieu Transactions

When a customer defaults on its mortgage, a lending institution has a variety of remedies readily available to it. In the last few years, lenders along with debtors have increasingly chosen to pursue alternatives to the adversarial foreclosure procedure. Chief amongst these is the deed in lieu of foreclosure (described 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 turning over the deed to the residential or commercial property.

During these challenging financial times, deeds in lieu offer loan providers and debtors many benefits over a traditional foreclosure. Lenders can lessen the uncertainties intrinsic in the foreclosure procedure, lower the time and expenditure it requires to recover belongings, and increase the likelihood of getting the residential or commercial property in better condition and in a more smooth way together with an appropriate accounting. Borrowers can avoid expensive and drawn-out foreclosure fights (which are generally unsuccessful in the long run), manage continuing liabilities and tax implications, and put a more positive spin on their credit and reputation. However, deeds in lieu can also posture considerable risks to the celebrations if the issues attendant to the procedure are not thoroughly considered and the files are not effectively drafted.

A deed in lieu must not be considered unless an expert appraisal values the residential or commercial property at less than the remaining mortgage obligation. Otherwise, there is the risk of another financial institution (or trustee in personal bankruptcy) declaring that the transfer is a fraudulent conveyance and, in any case, the customer would obviously be hesitant to give up a residential or commercial property in which it may stand to recover some worth following a foreclosure sale. Also, a deed in lieu deal should not be forced upon a customer