Foreclosure
When buying a home with a loan, the buyer typically pledges the house as collateral for the loan. Foreclosure is the legal process used by a lender to collect on the collateral, should the borrower default on the loan. Foreclosure procedures vary, depending on the type of loan and state laws. Depending on the type of foreclosure, it may or may not involve court action. In some situations, the property is sold to satisfy the debt or the lender receives the property.
Deed in Lieu of Foreclosure
When a borrower knows foreclosure is inevitable and is unable to liquidate the property and satisfy the lender, he may wish to get the matter over quickly, rather than go through a painful and embarrassing foreclosure process. In a deed in lieu of foreclosure, the buyer willingly turns the deed to the property over to the lender. The deed in lieu of foreclosure is a mutual agreement between the borrower and lender. Like a foreclosure, the deed in lieu of foreclosure adversely affects the debtor's credit scores.
Lender Risks
The lender may not be willing to accept a deed in lieu of foreclosure, as doing so may result in the lender forfeiting certain rights or becoming responsible for liabilities, such as junior liens. For example, if you have a second lien on your home, the lender holding the first won't be able to discharge the obligations to the second mortgage holder by accepting the deed; a formal foreclosure process would be necessary. The lender may also face losses in mortgage insurance rights or other mortgage guarantees.
Borrower's Appeal
The borrower cannot force the lender to accept a deed in lieu of foreclosure. It must be a mutual agreement. Each situation is different, depending on the types of liens there are against the property. To determine if you can do a deed of foreclosure, you must appeal to your lender. If the lender believes it is to its financial advantage to accept a deed in lieu of foreclosure, instead of going through formal foreclosure, the lender may agree.
No comments:
Post a Comment