Deed-In-Lieu of Foreclosure
Deed-in-lieu is a process in which the borrower failing to satisfy the loan obligation hands over his property to the lender. The lender may then sell the property in order to retrieve a part or whole of the amount borrowed from the sale proceeds. The principle advantage to the borrower is that it immediately releases him from all of the personal indebtedness associated with the defaulted loan.
So, you the lender effectively waives its right to pursue you for any debt associated with your mortgage. Sometimes this objective is achieved during the foreclosure proceedings through defenses, and other times it can be negotiated to prevent the filing of a foreclosure complaint. It is important for the borrower to obtain an attorney to proceed with a deed in lieu of foreclosure in order to avoid legal and tax consequences.
Home Affordable Foreclosure Alternatives Program
A loan is eligible for HAFA if the servicer verifies that all of the following criteria are met:
The mortgage loan is a first lien mortgage loan originated on or before January 1, 2009. This includes mortgages secured by:
- Cooperative shares,
- Condominium units, and
- Manufactured housing (the first lien mortgage loan must be secured by the manufactured home and the land, both of which must be classified as real property under applicable state law).
The reference to “originated on or before” refers to the date on which the loan was first originated.
Delinquent or imminent default, foreclosure or bankruptcy
- The mortgage loan is delinquent or default is reasonable foreseeable. Loans currently in foreclosure or bankruptcy are eligible.
- The mortgage loan is secured by a one-to four-unit property.
- The property securing the mortgage loan is not condemned.
Unpaid principal balance limits
- The current UPB of the mortgage loan not including arrearages is not greater than:
- 1 Unit – $ 729,750
- 2 Units – $ 934,200
- 3 Units – $ 1,129,250
- 4 Units – $ 1,403,400
- A borrower has documented a financial hardship, evidenced by a signed Hardship Affidavit or RMA, wherein the borrower has represented that he or she does not have sufficient liquid assets to make the monthly mortgage payments. As example of such hardship includes a service member citing a “Permanent Change of Station” order as the basis for his or her financial hardship when requesting HAFA even if such servicemember’s income has not been decreased, so long as the service member doe not have sufficient liquid assets to make his or her monthly payments.
Program cut-off date
- The borrower has submitted either (i) a fully executed HAFA Short Sale Agreement (SSA) or Deed-in-Lieu (DIL) Agreement, or (ii) a written request (mail, fax or e-mail) for consideration for a SSA or DIL Agreement or Alternative Request for Approval of Short Sale (Alternative RASS) on or before December 31, 2013 and the transaction closing date is on or before September 30, 2014.
Borrower is a natural person
- The borrower must be a natural person. Mortgage loans made to, or secured by properties owned by, corporations, partnerships, limited liability companies or other business entities are not eligible for assistance under HAMP.
The borrower must sign and return the SSA within 14 calendar days from the SSA Effective Date along with a copy of the real estate broker listing agreement and information regarding any subordinate liens and the occupancy status of the property. In returning and signing the SSA the borrower agrees to:
- Provide all information and sign documents required to verify program eligibility.
- Cooperate with the listing broker to actively market the property and respond to servicer inquires.
- Maintain the inter and exterior of the property in a manner that facilitates marketability.
- Work to clear and liens or other impediments to title that would prevent conveyance.
- Make the monthly payment stipulated in the SSA, if applicable.
In accordance with its HAFA policy and investor guidelines, servicers have the discretion to offer and accept a Deed-In-Lieu of foreclosure as part of the HAFA program. Acceptance of a Deed-In-Lieu of foreclosure requires a full release of the debt and a waiver of all claims against the borrower. Unless the borrower and servicer enter into a deed-to-lease or other alternative arrangement, generally, the borrower must agree to vacate the property or, in the case of a rental property, have the tenant or other non-borrower occupant, if applicable, vacate the property by a date certain, leave the property in clean condition and deliver and clear and marketable title.
The following terms apply to a HAFA Deed-In-Lieu of foreclosure:
- The borrower must be able to convey clear, marketable title to the servicer or investor.
- The conditions for acceptance of a Deed-In-Lieu of foreclosure must be in writing and signed by both the servicer and borrower. They may be set forth in SSA if approved with the short sale, or in a separate DIL agreement.
- The SSA or DIL Agreement must specify the date by which the borrower, tenant or other non-borrower occupant, if applicable, must vacate the property, which in no event shall be less than 30 calendar days from the date of the termination date of the SSA or the date of a separate DIL agreement, unless the borrower voluntarily agrees to an early date.
- An agreement that upon successful closing of the DIL transaction, a borrower, tenant or other non-borrower occupant who will be required to vacate the property as a result of the DIL will be entitled to a relocation assistance of $3,000.
- The SSA or DIL Agreement may provide an option for the borrower or tenant, if applicable, to continue to occupy the property on a rental basis (deed-for-lease) or provide an opportunity for a borrower to repurchase the property at some future time. Such transactions are not eligible for relocation assistance, but are eligible for servicer and investor incentives under HAFA, so long as all other program requirements are met. Servicers offering programs of this type must include program descriptions and conditions in their HAFA policy.
- Conditional DIL agreements that allow a borrower to reinstate the original loan following some period of rental occupancy are not eligible for HAFA incentives unless and until the DIL is successfully closed and borrower no longer has the option of reinstating or modifying the original first mortgage lien.