Getting A Deed In Lieu at closing to store away

[Chris Seveney]

There are gurus out there who will tell you when seller financing to have the borrower sign a deed in lieu at closing so if they stop paying you can just record the deed in lieu. Every attorney I have ever talked to has always said never to do this as its predatory and would never stand up in court. 

Well I have seen this come into play - I had someone who has a note in florida that was a non-owner occupied loan and the lender claims the borrower failed to make payments on this and attempted to record the deed in lieu. The case is in court right now with the lender filing a case to foreclose and the borrower filing a counterclaim against the lender:

Here is what I have found reviewing this case:

1. The lender did not use a servicing company, and the pay history is being contested (which should be easy to prove)

2. The courts did not take lightly the forced deed in lieu at signing and rejected it.

3. The counterclaim states that since the deed in lieu language was part of the loan, the entire loan is invalid. (not sure on state law but this probably is a tough sell)

4. This has been tied up in court and does not really have an end in sight at this time.

5. It does not appear the lender used an attorney to draft the note, as its the worst note I have ever seen for a $2M loan.

Lessons learned: if you want to be a professional, then act like one. From not having an attorney draft the docs, to trying to cheat the system with the deed in lieu to not professionally servicing the loan. The lender did everything wrong in this situation and now are paying for it.

Now they are trying to sell the loan at a slight discount (oh did I say its a 0% interest loan and they jacked up the UPB of the loan instead of adding interest) - again another rookie mistake. Most likely trying to find a sucker to buy this and take over the costly legal battle they are entailed in.

So next time someone is like "yeah just get a deed in lieu at closing", think twice about that.