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Updated 15 days ago,
Getting A Deed In Lieu at closing to store away
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.
- Chris Seveney
- Lender
- Charleston, SC
- 316
- Votes |
- 441
- Posts
I have personally seen the "Deed in Lieu in escrow" tactic with two different private lenders in Louisiana. I always assumed that this would be unenforceable, but havent seen an actual case yet. Would you mind posting the case name so I can read up on it?
- Lender
- The Woodlands, TX
- 8,661
- Votes |
- 5,612
- Posts
Quote from @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.
I need to clarify that these notes are commercial and investment property, so do not have to comply with residential lending requirements.
With a deed in lieu there is no foreclosure, judicial or non judicial. The lender just records the warranty deed and is the owner of the property. The borrower has already signed the warranty deed, it’s being held “in escrow” pending the fulfillment or non fulfillment of the forbearance or modification.
The agreement of forbearance or modification should have the borrowers knowledge that they are in default, that they understand that the lender is forgoing foreclosure at this time in exchange for the deed in lieu, and that the borrower is represented by legal counsel.
we pay a LOT of money for legal advice, legal document preparation, etc., the result is that we aren’t challenged when we need to take ownership if the borrower can’t perform.
- Don Konipol
- Lender
- Charleston, SC
- 316
- Votes |
- 441
- Posts
Quote from @Don Konipol:
Quote from @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.
I need to clarify that these notes are commercial and investment property, so do not have to comply with residential lending requirements.
With a deed in lieu there is no foreclosure, judicial or non judicial. The lender just records the warranty deed and is the owner of the property. The borrower has already signed the warranty deed, it’s being held “in escrow” pending the fulfillment or non fulfillment of the forbearance or modification.
The agreement of forbearance or modification should have the borrowers knowledge that they are in default, that they understand that the lender is forgoing foreclosure at this time in exchange for the deed in lieu, and that the borrower is represented by legal counsel.
we pay a LOT of money for legal advice, legal document preparation, etc., the result is that we aren’t challenged when we need to take ownership if the borrower can’t perform.
This makes sense. I know Deed in Lieu is a common and normal practice. What I was referring to was that I know two private lenders who have the borrower complete the Deed in Lieu documents at the Closing of the initial loan and then hold them in escrow during the life of the loan. If/when the borrower defaults, they file the Deed in Lieu as a way to circumvent foreclosure regardless of what the borrower wants or the circumstances. Basically it's "Hey borrower, you already signed a deed in lieu. If you dont pay by next Thursday, I'm going to tell my atty to file it and take your property." I dont see how that can withstand a challenge.
- Lender
- The Woodlands, TX
- 8,661
- Votes |
- 5,612
- Posts
Quote from @Patrick Roberts:
Quote from @Don Konipol:
Quote from @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.
I need to clarify that these notes are commercial and investment property, so do not have to comply with residential lending requirements.
With a deed in lieu there is no foreclosure, judicial or non judicial. The lender just records the warranty deed and is the owner of the property. The borrower has already signed the warranty deed, it’s being held “in escrow” pending the fulfillment or non fulfillment of the forbearance or modification.
The agreement of forbearance or modification should have the borrowers knowledge that they are in default, that they understand that the lender is forgoing foreclosure at this time in exchange for the deed in lieu, and that the borrower is represented by legal counsel.
we pay a LOT of money for legal advice, legal document preparation, etc., the result is that we aren’t challenged when we need to take ownership if the borrower can’t perform.
This makes sense. I know Deed in Lieu is a common and normal practice. What I was referring to was that I know two private lenders who have the borrower complete the Deed in Lieu documents at the Closing of the initial loan and then hold them in escrow during the life of the loan. If/when the borrower defaults, they file the Deed in Lieu as a way to circumvent foreclosure regardless of what the borrower wants or the circumstances. Basically it's "Hey borrower, you already signed a deed in lieu. If you dont pay by next Thursday, I'm going to tell my atty to file it and take your property." I dont see how that can withstand a challenge.
While it most probably WON’T withstand legal challenge, the borrower would have to spend money to litigate it. Since the remedy would be only a court order to withdraw the warranty deed from county clerk filing records, the borrower would have to pay counsel out of pocket in what could be a long, drawn out case. Additionally, the borrower no longer has any income coming from the subject property during these proceedings. So, the borrower would probably need to begin with the expenditure of a $10,000 retainer for counsel, followed by another $10,000 after initial depositions . Then $10,000 more at time of trial. That’s IF the lender decides NOT to pursue a strategy of bankrupting the borrower by filing a ton of paperwork, motions, requests for information, etc. The lender may figure if the borrower had this kind of money they’d be making the mortgage payments.
I’ve seen cases where the lender filed the deed in lieu, then when the borrower threatened suit offered them a cash settlement to forgo litigation. In this case the desperate borrower accepted a rather modest settlement.
A way around the whole issue is something we occasionally consider. If the proposed loan is too risky because (1) chance of default is too high and or (2) cost of foreclosing too high or time it takes too long and we would otherwise decline the loan, we might offer to purchase the subject property for a price equal to the loan amount. The “borrower” would have an option to buy back the property if (1) all lease payments (“mortgage payments”) have been made and the borrower/seller pays is the sale price/loan amount in full at the time the option period/note matures. This way in case of “default” we don’t need to go thru foreclosure, or bankruptcy litigation since we already own the property on a sale/leaseback/option arrangement. Again, this is with commercial/investment property; owner occupied or consumer loans may have legal issues rendering this technique non applicable.
- Don Konipol
Quote from @Don Konipol:
Quote from @Patrick Roberts:
Quote from @Don Konipol:
Quote from @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.
I need to clarify that these notes are commercial and investment property, so do not have to comply with residential lending requirements.
With a deed in lieu there is no foreclosure, judicial or non judicial. The lender just records the warranty deed and is the owner of the property. The borrower has already signed the warranty deed, it’s being held “in escrow” pending the fulfillment or non fulfillment of the forbearance or modification.
The agreement of forbearance or modification should have the borrowers knowledge that they are in default, that they understand that the lender is forgoing foreclosure at this time in exchange for the deed in lieu, and that the borrower is represented by legal counsel.
we pay a LOT of money for legal advice, legal document preparation, etc., the result is that we aren’t challenged when we need to take ownership if the borrower can’t perform.
This makes sense. I know Deed in Lieu is a common and normal practice. What I was referring to was that I know two private lenders who have the borrower complete the Deed in Lieu documents at the Closing of the initial loan and then hold them in escrow during the life of the loan. If/when the borrower defaults, they file the Deed in Lieu as a way to circumvent foreclosure regardless of what the borrower wants or the circumstances. Basically it's "Hey borrower, you already signed a deed in lieu. If you dont pay by next Thursday, I'm going to tell my atty to file it and take your property." I dont see how that can withstand a challenge.
While it most probably WON’T withstand legal challenge, the borrower would have to spend money to litigate it. Since the remedy would be only a court order to withdraw the warranty deed from county clerk filing records, the borrower would have to pay counsel out of pocket in what could be a long, drawn out case. Additionally, the borrower no longer has any income coming from the subject property during these proceedings. So, the borrower would probably need to begin with the expenditure of a $10,000 retainer for counsel, followed by another $10,000 after initial depositions . Then $10,000 more at time of trial. That’s IF the lender decides NOT to pursue a strategy of bankrupting the borrower by filing a ton of paperwork, motions, requests for information, etc. The lender may figure if the borrower had this kind of money they’d be making the mortgage payments.
I’ve seen cases where the lender filed the deed in lieu, then when the borrower threatened suit offered them a cash settlement to forgo litigation. In this case the desperate borrower accepted a rather modest settlement.
A way around the whole issue is something we occasionally consider. If the proposed loan is too risky because (1) chance of default is too high and or (2) cost of foreclosing too high or time it takes too long and we would otherwise decline the loan, we might offer to purchase the subject property for a price equal to the loan amount. The “borrower” would have an option to buy back the property if (1) all lease payments (“mortgage payments”) have been made and the borrower/seller pays is the sale price/loan amount in full at the time the option period/note matures. This way in case of “default” we don’t need to go thru foreclosure, or bankruptcy litigation since we already own the property on a sale/leaseback/option arrangement. Again, this is with commercial/investment property; owner occupied or consumer loans may have legal issues rendering this technique non applicable.
We just had a loan like what you were referring too. Borrower on PFS noted they were worth $75M. We called them out on it and asked for tax returns. They had not filed taxes in five years as they lost considerable money during covid. They then say well maybe not worth $75M but worth something. They wanted $1.2M to payoff maturing HML on a $2.5M property. their credit was 580 and we told them we would not give you a loan but we would buy the property from you for $1.2M, provide you with a 12 month lease with an option to buy. in 12 months you either buy it or its ours.
They came back and would not do as we found they already have investors in the property....
In the instance you refer too, this is in florida and I have seen in FL defendants get attorneys fees covered. There are also a lot of attorneys in FL working pro bono to go after lenders as I believe there is something in the statute that not only can they recoup fees but they can also get consequential damages. Florida is a state that does not fool around when it comes to foreclosures as if you do not have your i's dotted and T's crossed you can get burned bad.
- Chris Seveney
- Lender
- Charleston, SC
- 316
- Votes |
- 441
- Posts
Quote from @Don Konipol:
Quote from @Patrick Roberts:
Quote from @Don Konipol:
Quote from @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.
I need to clarify that these notes are commercial and investment property, so do not have to comply with residential lending requirements.
With a deed in lieu there is no foreclosure, judicial or non judicial. The lender just records the warranty deed and is the owner of the property. The borrower has already signed the warranty deed, it’s being held “in escrow” pending the fulfillment or non fulfillment of the forbearance or modification.
The agreement of forbearance or modification should have the borrowers knowledge that they are in default, that they understand that the lender is forgoing foreclosure at this time in exchange for the deed in lieu, and that the borrower is represented by legal counsel.
we pay a LOT of money for legal advice, legal document preparation, etc., the result is that we aren’t challenged when we need to take ownership if the borrower can’t perform.
This makes sense. I know Deed in Lieu is a common and normal practice. What I was referring to was that I know two private lenders who have the borrower complete the Deed in Lieu documents at the Closing of the initial loan and then hold them in escrow during the life of the loan. If/when the borrower defaults, they file the Deed in Lieu as a way to circumvent foreclosure regardless of what the borrower wants or the circumstances. Basically it's "Hey borrower, you already signed a deed in lieu. If you dont pay by next Thursday, I'm going to tell my atty to file it and take your property." I dont see how that can withstand a challenge.
While it most probably WON’T withstand legal challenge, the borrower would have to spend money to litigate it. Since the remedy would be only a court order to withdraw the warranty deed from county clerk filing records, the borrower would have to pay counsel out of pocket in what could be a long, drawn out case. Additionally, the borrower no longer has any income coming from the subject property during these proceedings. So, the borrower would probably need to begin with the expenditure of a $10,000 retainer for counsel, followed by another $10,000 after initial depositions . Then $10,000 more at time of trial. That’s IF the lender decides NOT to pursue a strategy of bankrupting the borrower by filing a ton of paperwork, motions, requests for information, etc. The lender may figure if the borrower had this kind of money they’d be making the mortgage payments.
I’ve seen cases where the lender filed the deed in lieu, then when the borrower threatened suit offered them a cash settlement to forgo litigation. In this case the desperate borrower accepted a rather modest settlement.
A way around the whole issue is something we occasionally consider. If the proposed loan is too risky because (1) chance of default is too high and or (2) cost of foreclosing too high or time it takes too long and we would otherwise decline the loan, we might offer to purchase the subject property for a price equal to the loan amount. The “borrower” would have an option to buy back the property if (1) all lease payments (“mortgage payments”) have been made and the borrower/seller pays is the sale price/loan amount in full at the time the option period/note matures. This way in case of “default” we don’t need to go thru foreclosure, or bankruptcy litigation since we already own the property on a sale/leaseback/option arrangement. Again, this is with commercial/investment property; owner occupied or consumer loans may have legal issues rendering this technique non applicable.
Setting up loans as Repo's is something I've thought about a lot, but I wasn't sure if anyone was actually using this. Other than the additional transaction costs, I would think it's a solid play overall for higher risk deals.
Very interesting discussion.
- Lender
- Lake Oswego OR Summerlin, NV
- 62,260
- Votes |
- 42,348
- Posts
Quote from @Patrick Roberts:
Quote from @Don Konipol:
Quote from @Patrick Roberts:
Quote from @Don Konipol:
Quote from @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.
I need to clarify that these notes are commercial and investment property, so do not have to comply with residential lending requirements.
With a deed in lieu there is no foreclosure, judicial or non judicial. The lender just records the warranty deed and is the owner of the property. The borrower has already signed the warranty deed, it’s being held “in escrow” pending the fulfillment or non fulfillment of the forbearance or modification.
The agreement of forbearance or modification should have the borrowers knowledge that they are in default, that they understand that the lender is forgoing foreclosure at this time in exchange for the deed in lieu, and that the borrower is represented by legal counsel.
we pay a LOT of money for legal advice, legal document preparation, etc., the result is that we aren’t challenged when we need to take ownership if the borrower can’t perform.
This makes sense. I know Deed in Lieu is a common and normal practice. What I was referring to was that I know two private lenders who have the borrower complete the Deed in Lieu documents at the Closing of the initial loan and then hold them in escrow during the life of the loan. If/when the borrower defaults, they file the Deed in Lieu as a way to circumvent foreclosure regardless of what the borrower wants or the circumstances. Basically it's "Hey borrower, you already signed a deed in lieu. If you dont pay by next Thursday, I'm going to tell my atty to file it and take your property." I dont see how that can withstand a challenge.
While it most probably WON’T withstand legal challenge, the borrower would have to spend money to litigate it. Since the remedy would be only a court order to withdraw the warranty deed from county clerk filing records, the borrower would have to pay counsel out of pocket in what could be a long, drawn out case. Additionally, the borrower no longer has any income coming from the subject property during these proceedings. So, the borrower would probably need to begin with the expenditure of a $10,000 retainer for counsel, followed by another $10,000 after initial depositions . Then $10,000 more at time of trial. That’s IF the lender decides NOT to pursue a strategy of bankrupting the borrower by filing a ton of paperwork, motions, requests for information, etc. The lender may figure if the borrower had this kind of money they’d be making the mortgage payments.
I’ve seen cases where the lender filed the deed in lieu, then when the borrower threatened suit offered them a cash settlement to forgo litigation. In this case the desperate borrower accepted a rather modest settlement.
A way around the whole issue is something we occasionally consider. If the proposed loan is too risky because (1) chance of default is too high and or (2) cost of foreclosing too high or time it takes too long and we would otherwise decline the loan, we might offer to purchase the subject property for a price equal to the loan amount. The “borrower” would have an option to buy back the property if (1) all lease payments (“mortgage payments”) have been made and the borrower/seller pays is the sale price/loan amount in full at the time the option period/note matures. This way in case of “default” we don’t need to go thru foreclosure, or bankruptcy litigation since we already own the property on a sale/leaseback/option arrangement. Again, this is with commercial/investment property; owner occupied or consumer loans may have legal issues rendering this technique non applicable.
Setting up loans as Repo's is something I've thought about a lot, but I wasn't sure if anyone was actually using this. Other than the additional transaction costs, I would think it's a solid play overall for higher risk deals.
Very interesting discussion.
from my knowledge and then advice.. if the borrower signs the dil at closing they have already transfered it back.. it does not need to be recorded to be valid its valid the date its signed so there is that.. Plus every attorney I have talked to said it was illegal to require that or do that at loan inception.. But like you all I have seen it done with other lenders.
On the sale lease back Chris describes thats how i do the vast majority of my deals.
- Jay Hinrichs
- Podcast Guest on Show #222
This would be a very bad idea in California. Law is clear that you cannot circumvent a borrower's statutory rights via foreclosure process in advance. Not only would you effectively be giving up your right to proceed by way of non-judicial foreclosure, a very messy judicial foreclosure sale might not succeed and even if it did, ability to pass title would thereafter likely be subject to borrower's statutory redemption rights.
- Investor
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I think just a general rule of thumb is if you don't have experience, I'm talking years + and hours + in this field. Don't draft up your own seller finance note, get an attorney that's had years, hours, and courtroom hours to show up for it. Then let them guide you, play devil's advocate and act as the borrower, and cover your blind spots. It's crazy to think seller finance owners are willing to fight over $6k on the list price but won't pay $3-4k to have an attorney draft something they can enforce.
- DMV
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@Jay Hinrichs This is a state law issue. In some for a deed to be effective it must be "delivered" to the grantee. In others it must be recorded. So in those states it's possible to hold a deed in escrow pending the occurrence of some event, then deliver it / record it. Or if the event never occurs, destroy it like it never existed.
In states where a deed is effective immediately upon execution that would not be possible.
Of course as stated previously a pocket deed if recorded does violate the borrower's right of redemption and the right to have a property sold at a commercially reasonable foreclosure sale. Maybe that's not "illegal" but it is potentially actionable. Thus a DIL executed prior to default creates title insurance issues as you can't satisfy the underwriters' checklist -- prior default, comparison of value vs. amount owed, a negotiated DIL agreement, etc.
- Tom Gimer
I think you'll find most, if not all title insurers, will require the DIL to be dated and executed subsequent to default in order to insure. In addition, the Grantor will probably be required to sign the same seller's affidavit that are needed for a non DIL closing. Here's a short treatise by a title insurer:
A deed in lieu of foreclosure is a deed given by the owner of mortgaged property to the holder of the mortgage or its designee where the mortgage is in default and foreclosure is a possibility. A deed is given and accepted as an alternative to ("in lieu of") foreclosure. Unlike a foreclosure, a deed in lieu of foreclosure does not extinguish any of the liens and encumbrances affecting the property.
Most courts recognize the execution of a deed in lieu of foreclosure in a transaction subsequent to the original mortgage transaction as a legitimate alternative to foreclosure proceedings. However, deeds in lieu of foreclosure can be subject to judicial attack by their grantors and their grantors' creditors.
Grounds for attacks on deeds in lieu of foreclosure include the following:
• That the deed was an equitable mortgage - that the parties intended the deed to be given as security for a debt and that the deed was not an absolute conveyance.
• That the deed is either a preferential or fraudulent transaction within the purview of the provisions of the federal Bankruptcy Act or any other related state law.
• That the deed is a device to clog a mortgagor's right of redemption.
• Unfairness of the consideration.
• Coercion, fraud, oppression, duress, and undue influence.
• That the deed is not subsequent to the execution of the mortgage but contemporaneous with it.
• That the grantor/mortgagor was insolvent at the time of the execution of the deed.
An estoppel affidavit (executed and acknowledged by the grantor/mortgagor, attesting to the fairness of the transaction, the consideration exchanged, the value of the property, and other factors showing an intention to make a genuine transfer) or a recital (inserted directly in the deed) are supporting documents used to forestall challenges to these transactions.
State law and local title standards must be consulted in regard to the consideration and treatment of deeds in lieu of foreclosure.
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- The Woodlands, TX
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Quote from @Peter Walther:
I think you'll find most, if not all title insurers, will require the DIL to be dated and executed subsequent to default in order to insure. In addition, the Grantor will probably be required to sign the same seller's affidavit that are needed for a non DIL closing. Here's a short treatise by a title insurer:
A deed in lieu of foreclosure is a deed given by the owner of mortgaged property to the holder of the mortgage or its designee where the mortgage is in default and foreclosure is a possibility. A deed is given and accepted as an alternative to ("in lieu of") foreclosure. Unlike a foreclosure, a deed in lieu of foreclosure does not extinguish any of the liens and encumbrances affecting the property.
Most courts recognize the execution of a deed in lieu of foreclosure in a transaction subsequent to the original mortgage transaction as a legitimate alternative to foreclosure proceedings. However, deeds in lieu of foreclosure can be subject to judicial attack by their grantors and their grantors' creditors.
Grounds for attacks on deeds in lieu of foreclosure include the following:
• That the deed was an equitable mortgage - that the parties intended the deed to be given as security for a debt and that the deed was not an absolute conveyance.
• That the deed is either a preferential or fraudulent transaction within the purview of the provisions of the federal Bankruptcy Act or any other related state law.
• That the deed is a device to clog a mortgagor's right of redemption.
• Unfairness of the consideration.
• Coercion, fraud, oppression, duress, and undue influence.
• That the deed is not subsequent to the execution of the mortgage but contemporaneous with it.
• That the grantor/mortgagor was insolvent at the time of the execution of the deed.
An estoppel affidavit (executed and acknowledged by the grantor/mortgagor, attesting to the fairness of the transaction, the consideration exchanged, the value of the property, and other factors showing an intention to make a genuine transfer) or a recital (inserted directly in the deed) are supporting documents used to forestall challenges to these transactions.
State law and local title standards must be consulted in regard to the consideration and treatment of deeds in lieu of foreclosure.
What a GREAT post!
- Don Konipol
Quote from @Don Konipol:
Quote from @Peter Walther:
I think you'll find most, if not all title insurers, will require the DIL to be dated and executed subsequent to default in order to insure. In addition, the Grantor will probably be required to sign the same seller's affidavit that are needed for a non DIL closing. Here's a short treatise by a title insurer:
A deed in lieu of foreclosure is a deed given by the owner of mortgaged property to the holder of the mortgage or its designee where the mortgage is in default and foreclosure is a possibility. A deed is given and accepted as an alternative to ("in lieu of") foreclosure. Unlike a foreclosure, a deed in lieu of foreclosure does not extinguish any of the liens and encumbrances affecting the property.
Most courts recognize the execution of a deed in lieu of foreclosure in a transaction subsequent to the original mortgage transaction as a legitimate alternative to foreclosure proceedings. However, deeds in lieu of foreclosure can be subject to judicial attack by their grantors and their grantors' creditors.
Grounds for attacks on deeds in lieu of foreclosure include the following:
• That the deed was an equitable mortgage - that the parties intended the deed to be given as security for a debt and that the deed was not an absolute conveyance.
• That the deed is either a preferential or fraudulent transaction within the purview of the provisions of the federal Bankruptcy Act or any other related state law.
• That the deed is a device to clog a mortgagor's right of redemption.
• Unfairness of the consideration.
• Coercion, fraud, oppression, duress, and undue influence.
• That the deed is not subsequent to the execution of the mortgage but contemporaneous with it.
• That the grantor/mortgagor was insolvent at the time of the execution of the deed.
An estoppel affidavit (executed and acknowledged by the grantor/mortgagor, attesting to the fairness of the transaction, the consideration exchanged, the value of the property, and other factors showing an intention to make a genuine transfer) or a recital (inserted directly in the deed) are supporting documents used to forestall challenges to these transactions.
State law and local title standards must be consulted in regard to the consideration and treatment of deeds in lieu of foreclosure.
What a GREAT post!
Thanks. To expand a little on what is mentioned the underwriter's guideline, a DIL does not extinguish subsequent liens, so if the borrower has judgments against him/her/it that attach to the property, the DIL grantee takes title subject to them and may have difficulty getting them released later without payment. In addition, a DIL does not automatically satisfy the underlying mortgage/DOT so if you accept a deed from the DIL grantee you may find a title insurer will require a release or sat of it before insuring.
- Lender
- Lake Oswego OR Summerlin, NV
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- 42,348
- Posts
Quote from @Peter Walther:
Quote from @Don Konipol:
Quote from @Peter Walther:
I think you'll find most, if not all title insurers, will require the DIL to be dated and executed subsequent to default in order to insure. In addition, the Grantor will probably be required to sign the same seller's affidavit that are needed for a non DIL closing. Here's a short treatise by a title insurer:
A deed in lieu of foreclosure is a deed given by the owner of mortgaged property to the holder of the mortgage or its designee where the mortgage is in default and foreclosure is a possibility. A deed is given and accepted as an alternative to ("in lieu of") foreclosure. Unlike a foreclosure, a deed in lieu of foreclosure does not extinguish any of the liens and encumbrances affecting the property.
Most courts recognize the execution of a deed in lieu of foreclosure in a transaction subsequent to the original mortgage transaction as a legitimate alternative to foreclosure proceedings. However, deeds in lieu of foreclosure can be subject to judicial attack by their grantors and their grantors' creditors.
Grounds for attacks on deeds in lieu of foreclosure include the following:
• That the deed was an equitable mortgage - that the parties intended the deed to be given as security for a debt and that the deed was not an absolute conveyance.
• That the deed is either a preferential or fraudulent transaction within the purview of the provisions of the federal Bankruptcy Act or any other related state law.
• That the deed is a device to clog a mortgagor's right of redemption.
• Unfairness of the consideration.
• Coercion, fraud, oppression, duress, and undue influence.
• That the deed is not subsequent to the execution of the mortgage but contemporaneous with it.
• That the grantor/mortgagor was insolvent at the time of the execution of the deed.
An estoppel affidavit (executed and acknowledged by the grantor/mortgagor, attesting to the fairness of the transaction, the consideration exchanged, the value of the property, and other factors showing an intention to make a genuine transfer) or a recital (inserted directly in the deed) are supporting documents used to forestall challenges to these transactions.
State law and local title standards must be consulted in regard to the consideration and treatment of deeds in lieu of foreclosure.
What a GREAT post!
Thanks. To expand a little on what is mentioned the underwriter's guideline, a DIL does not extinguish subsequent liens, so if the borrower has judgments against him/her/it that attach to the property, the DIL grantee takes title subject to them and may have difficulty getting them released later without payment. In addition, a DIL does not automatically satisfy the underlying mortgage/DOT so if you accept a deed from the DIL grantee you may find a title insurer will require a release or sat of it before insuring.
YUP I can see lenders just recording the DIl.. the few times I have done that I get title insurance on the dil transfer to make sure I am not taking title to something nasty and or if something comes up in the prelim title report we know we have to move to full foreclosure .. I know most lenders in the bizz will not make this mistake but with all these mom and pops jumping into lending I can see some of them not knowing and just record it only to get a nasty surprise when they go to sell..
- Jay Hinrichs
- Podcast Guest on Show #222
- Lender
- The Woodlands, TX
- 8,661
- Votes |
- 5,612
- Posts
Quote from @Peter Walther:
Quote from @Don Konipol:
Quote from @Peter Walther:
I think you'll find most, if not all title insurers, will require the DIL to be dated and executed subsequent to default in order to insure. In addition, the Grantor will probably be required to sign the same seller's affidavit that are needed for a non DIL closing. Here's a short treatise by a title insurer:
A deed in lieu of foreclosure is a deed given by the owner of mortgaged property to the holder of the mortgage or its designee where the mortgage is in default and foreclosure is a possibility. A deed is given and accepted as an alternative to ("in lieu of") foreclosure. Unlike a foreclosure, a deed in lieu of foreclosure does not extinguish any of the liens and encumbrances affecting the property.
Most courts recognize the execution of a deed in lieu of foreclosure in a transaction subsequent to the original mortgage transaction as a legitimate alternative to foreclosure proceedings. However, deeds in lieu of foreclosure can be subject to judicial attack by their grantors and their grantors' creditors.
Grounds for attacks on deeds in lieu of foreclosure include the following:
• That the deed was an equitable mortgage - that the parties intended the deed to be given as security for a debt and that the deed was not an absolute conveyance.
• That the deed is either a preferential or fraudulent transaction within the purview of the provisions of the federal Bankruptcy Act or any other related state law.
• That the deed is a device to clog a mortgagor's right of redemption.
• Unfairness of the consideration.
• Coercion, fraud, oppression, duress, and undue influence.
• That the deed is not subsequent to the execution of the mortgage but contemporaneous with it.
• That the grantor/mortgagor was insolvent at the time of the execution of the deed.
An estoppel affidavit (executed and acknowledged by the grantor/mortgagor, attesting to the fairness of the transaction, the consideration exchanged, the value of the property, and other factors showing an intention to make a genuine transfer) or a recital (inserted directly in the deed) are supporting documents used to forestall challenges to these transactions.
State law and local title standards must be consulted in regard to the consideration and treatment of deeds in lieu of foreclosure.
What a GREAT post!
Thanks. To expand a little on what is mentioned the underwriter's guideline, a DIL does not extinguish subsequent liens, so if the borrower has judgments against him/her/it that attach to the property, the DIL grantee takes title subject to them and may have difficulty getting them released later without payment. In addition, a DIL does not automatically satisfy the underlying mortgage/DOT so if you accept a deed from the DIL grantee you may find a title insurer will require a release or sat of it before insuring.
- Don Konipol
Quote from @Jay Hinrichs:
Quote from @Peter Walther:
Quote from @Don Konipol:
Quote from @Peter Walther:
I think you'll find most, if not all title insurers, will require the DIL to be dated and executed subsequent to default in order to insure. In addition, the Grantor will probably be required to sign the same seller's affidavit that are needed for a non DIL closing. Here's a short treatise by a title insurer:
A deed in lieu of foreclosure is a deed given by the owner of mortgaged property to the holder of the mortgage or its designee where the mortgage is in default and foreclosure is a possibility. A deed is given and accepted as an alternative to ("in lieu of") foreclosure. Unlike a foreclosure, a deed in lieu of foreclosure does not extinguish any of the liens and encumbrances affecting the property.
Most courts recognize the execution of a deed in lieu of foreclosure in a transaction subsequent to the original mortgage transaction as a legitimate alternative to foreclosure proceedings. However, deeds in lieu of foreclosure can be subject to judicial attack by their grantors and their grantors' creditors.
Grounds for attacks on deeds in lieu of foreclosure include the following:
• That the deed was an equitable mortgage - that the parties intended the deed to be given as security for a debt and that the deed was not an absolute conveyance.
• That the deed is either a preferential or fraudulent transaction within the purview of the provisions of the federal Bankruptcy Act or any other related state law.
• That the deed is a device to clog a mortgagor's right of redemption.
• Unfairness of the consideration.
• Coercion, fraud, oppression, duress, and undue influence.
• That the deed is not subsequent to the execution of the mortgage but contemporaneous with it.
• That the grantor/mortgagor was insolvent at the time of the execution of the deed.
An estoppel affidavit (executed and acknowledged by the grantor/mortgagor, attesting to the fairness of the transaction, the consideration exchanged, the value of the property, and other factors showing an intention to make a genuine transfer) or a recital (inserted directly in the deed) are supporting documents used to forestall challenges to these transactions.
State law and local title standards must be consulted in regard to the consideration and treatment of deeds in lieu of foreclosure.
What a GREAT post!
Thanks. To expand a little on what is mentioned the underwriter's guideline, a DIL does not extinguish subsequent liens, so if the borrower has judgments against him/her/it that attach to the property, the DIL grantee takes title subject to them and may have difficulty getting them released later without payment. In addition, a DIL does not automatically satisfy the underlying mortgage/DOT so if you accept a deed from the DIL grantee you may find a title insurer will require a release or sat of it before insuring.
YUP I can see lenders just recording the DIl.. the few times I have done that I get title insurance on the dil transfer to make sure I am not taking title to something nasty and or if something comes up in the prelim title report we know we have to move to full foreclosure .. I know most lenders in the bizz will not make this mistake but with all these mom and pops jumping into lending I can see some of them not knowing and just record it only to get a nasty surprise when they go to sell..
I had more than one title claim because a title examiner wasn't aware of the difference between a foreclosure and a DIL.
Quote from @Don Konipol:
Quote from @Peter Walther:
Quote from @Don Konipol:
Quote from @Peter Walther:
I think you'll find most, if not all title insurers, will require the DIL to be dated and executed subsequent to default in order to insure. In addition, the Grantor will probably be required to sign the same seller's affidavit that are needed for a non DIL closing. Here's a short treatise by a title insurer:
A deed in lieu of foreclosure is a deed given by the owner of mortgaged property to the holder of the mortgage or its designee where the mortgage is in default and foreclosure is a possibility. A deed is given and accepted as an alternative to ("in lieu of") foreclosure. Unlike a foreclosure, a deed in lieu of foreclosure does not extinguish any of the liens and encumbrances affecting the property.
Most courts recognize the execution of a deed in lieu of foreclosure in a transaction subsequent to the original mortgage transaction as a legitimate alternative to foreclosure proceedings. However, deeds in lieu of foreclosure can be subject to judicial attack by their grantors and their grantors' creditors.
Grounds for attacks on deeds in lieu of foreclosure include the following:
• That the deed was an equitable mortgage - that the parties intended the deed to be given as security for a debt and that the deed was not an absolute conveyance.
• That the deed is either a preferential or fraudulent transaction within the purview of the provisions of the federal Bankruptcy Act or any other related state law.
• That the deed is a device to clog a mortgagor's right of redemption.
• Unfairness of the consideration.
• Coercion, fraud, oppression, duress, and undue influence.
• That the deed is not subsequent to the execution of the mortgage but contemporaneous with it.
• That the grantor/mortgagor was insolvent at the time of the execution of the deed.
An estoppel affidavit (executed and acknowledged by the grantor/mortgagor, attesting to the fairness of the transaction, the consideration exchanged, the value of the property, and other factors showing an intention to make a genuine transfer) or a recital (inserted directly in the deed) are supporting documents used to forestall challenges to these transactions.
State law and local title standards must be consulted in regard to the consideration and treatment of deeds in lieu of foreclosure.
What a GREAT post!
Thanks. To expand a little on what is mentioned the underwriter's guideline, a DIL does not extinguish subsequent liens, so if the borrower has judgments against him/her/it that attach to the property, the DIL grantee takes title subject to them and may have difficulty getting them released later without payment. In addition, a DIL does not automatically satisfy the underlying mortgage/DOT so if you accept a deed from the DIL grantee you may find a title insurer will require a release or sat of it before insuring.
An uncontested foreclosure is often the best way to resolve issues with subordinate lien holders though I've also contacted some and explained they were about to be named in a foreclosure and suggested that could be avoided if they just released the property from their judgment/lien.
Quote from @Don Konipol:
Quote from @Peter Walther:
Quote from @Don Konipol:
Quote from @Peter Walther:
I think you'll find most, if not all title insurers, will require the DIL to be dated and executed subsequent to default in order to insure. In addition, the Grantor will probably be required to sign the same seller's affidavit that are needed for a non DIL closing. Here's a short treatise by a title insurer:
A deed in lieu of foreclosure is a deed given by the owner of mortgaged property to the holder of the mortgage or its designee where the mortgage is in default and foreclosure is a possibility. A deed is given and accepted as an alternative to ("in lieu of") foreclosure. Unlike a foreclosure, a deed in lieu of foreclosure does not extinguish any of the liens and encumbrances affecting the property.
Most courts recognize the execution of a deed in lieu of foreclosure in a transaction subsequent to the original mortgage transaction as a legitimate alternative to foreclosure proceedings. However, deeds in lieu of foreclosure can be subject to judicial attack by their grantors and their grantors' creditors.
Grounds for attacks on deeds in lieu of foreclosure include the following:
• That the deed was an equitable mortgage - that the parties intended the deed to be given as security for a debt and that the deed was not an absolute conveyance.
• That the deed is either a preferential or fraudulent transaction within the purview of the provisions of the federal Bankruptcy Act or any other related state law.
• That the deed is a device to clog a mortgagor's right of redemption.
• Unfairness of the consideration.
• Coercion, fraud, oppression, duress, and undue influence.
• That the deed is not subsequent to the execution of the mortgage but contemporaneous with it.
• That the grantor/mortgagor was insolvent at the time of the execution of the deed.
An estoppel affidavit (executed and acknowledged by the grantor/mortgagor, attesting to the fairness of the transaction, the consideration exchanged, the value of the property, and other factors showing an intention to make a genuine transfer) or a recital (inserted directly in the deed) are supporting documents used to forestall challenges to these transactions.
State law and local title standards must be consulted in regard to the consideration and treatment of deeds in lieu of foreclosure.
What a GREAT post!
Thanks. To expand a little on what is mentioned the underwriter's guideline, a DIL does not extinguish subsequent liens, so if the borrower has judgments against him/her/it that attach to the property, the DIL grantee takes title subject to them and may have difficulty getting them released later without payment. In addition, a DIL does not automatically satisfy the underlying mortgage/DOT so if you accept a deed from the DIL grantee you may find a title insurer will require a release or sat of it before insuring.
What's a friendly foreclosure process? I had a non-performing loan once where a borrower would do a deed in lieu, but there was a deceased co-borrower, and my attorney required me to go through the foreclosure process to clear title.
- Dan Deppen
- Lender
- The Woodlands, TX
- 8,661
- Votes |
- 5,612
- Posts
Quote from @Dan Deppen:
Quote from @Don Konipol:
Quote from @Peter Walther:
Quote from @Don Konipol:
Quote from @Peter Walther:
I think you'll find most, if not all title insurers, will require the DIL to be dated and executed subsequent to default in order to insure. In addition, the Grantor will probably be required to sign the same seller's affidavit that are needed for a non DIL closing. Here's a short treatise by a title insurer:
A deed in lieu of foreclosure is a deed given by the owner of mortgaged property to the holder of the mortgage or its designee where the mortgage is in default and foreclosure is a possibility. A deed is given and accepted as an alternative to ("in lieu of") foreclosure. Unlike a foreclosure, a deed in lieu of foreclosure does not extinguish any of the liens and encumbrances affecting the property.
Most courts recognize the execution of a deed in lieu of foreclosure in a transaction subsequent to the original mortgage transaction as a legitimate alternative to foreclosure proceedings. However, deeds in lieu of foreclosure can be subject to judicial attack by their grantors and their grantors' creditors.
Grounds for attacks on deeds in lieu of foreclosure include the following:
• That the deed was an equitable mortgage - that the parties intended the deed to be given as security for a debt and that the deed was not an absolute conveyance.
• That the deed is either a preferential or fraudulent transaction within the purview of the provisions of the federal Bankruptcy Act or any other related state law.
• That the deed is a device to clog a mortgagor's right of redemption.
• Unfairness of the consideration.
• Coercion, fraud, oppression, duress, and undue influence.
• That the deed is not subsequent to the execution of the mortgage but contemporaneous with it.
• That the grantor/mortgagor was insolvent at the time of the execution of the deed.
An estoppel affidavit (executed and acknowledged by the grantor/mortgagor, attesting to the fairness of the transaction, the consideration exchanged, the value of the property, and other factors showing an intention to make a genuine transfer) or a recital (inserted directly in the deed) are supporting documents used to forestall challenges to these transactions.
State law and local title standards must be consulted in regard to the consideration and treatment of deeds in lieu of foreclosure.
What a GREAT post!
Thanks. To expand a little on what is mentioned the underwriter's guideline, a DIL does not extinguish subsequent liens, so if the borrower has judgments against him/her/it that attach to the property, the DIL grantee takes title subject to them and may have difficulty getting them released later without payment. In addition, a DIL does not automatically satisfy the underlying mortgage/DOT so if you accept a deed from the DIL grantee you may find a title insurer will require a release or sat of it before insuring.
What's a friendly foreclosure process? I had a non-performing loan once where a borrower would do a deed in lieu, but there was a deceased co-borrower, and my attorney required me to go through the foreclosure process to clear title.
- Don Konipol
Quote from @Don Konipol:
Quote from @Dan Deppen:
Quote from @Don Konipol:
Quote from @Peter Walther:
Quote from @Don Konipol:
Quote from @Peter Walther:
I think you'll find most, if not all title insurers, will require the DIL to be dated and executed subsequent to default in order to insure. In addition, the Grantor will probably be required to sign the same seller's affidavit that are needed for a non DIL closing. Here's a short treatise by a title insurer:
A deed in lieu of foreclosure is a deed given by the owner of mortgaged property to the holder of the mortgage or its designee where the mortgage is in default and foreclosure is a possibility. A deed is given and accepted as an alternative to ("in lieu of") foreclosure. Unlike a foreclosure, a deed in lieu of foreclosure does not extinguish any of the liens and encumbrances affecting the property.
Most courts recognize the execution of a deed in lieu of foreclosure in a transaction subsequent to the original mortgage transaction as a legitimate alternative to foreclosure proceedings. However, deeds in lieu of foreclosure can be subject to judicial attack by their grantors and their grantors' creditors.
Grounds for attacks on deeds in lieu of foreclosure include the following:
• That the deed was an equitable mortgage - that the parties intended the deed to be given as security for a debt and that the deed was not an absolute conveyance.
• That the deed is either a preferential or fraudulent transaction within the purview of the provisions of the federal Bankruptcy Act or any other related state law.
• That the deed is a device to clog a mortgagor's right of redemption.
• Unfairness of the consideration.
• Coercion, fraud, oppression, duress, and undue influence.
• That the deed is not subsequent to the execution of the mortgage but contemporaneous with it.
• That the grantor/mortgagor was insolvent at the time of the execution of the deed.
An estoppel affidavit (executed and acknowledged by the grantor/mortgagor, attesting to the fairness of the transaction, the consideration exchanged, the value of the property, and other factors showing an intention to make a genuine transfer) or a recital (inserted directly in the deed) are supporting documents used to forestall challenges to these transactions.
State law and local title standards must be consulted in regard to the consideration and treatment of deeds in lieu of foreclosure.
What a GREAT post!
Thanks. To expand a little on what is mentioned the underwriter's guideline, a DIL does not extinguish subsequent liens, so if the borrower has judgments against him/her/it that attach to the property, the DIL grantee takes title subject to them and may have difficulty getting them released later without payment. In addition, a DIL does not automatically satisfy the underlying mortgage/DOT so if you accept a deed from the DIL grantee you may find a title insurer will require a release or sat of it before insuring.
What's a friendly foreclosure process? I had a non-performing loan once where a borrower would do a deed in lieu, but there was a deceased co-borrower, and my attorney required me to go through the foreclosure process to clear title.
Thanks, got it! That's what mine was.
- Dan Deppen