DEED IN LIEU OF FORECLOSURE

The deed in lieu of foreclosure in Florida could be a sound solution to a financial crisis.

If you facing a foreclosure, you may not realize you have an option called “deed in lieu of foreclosure”.  This may prove to be a less stressful and more affordable course of action. The deed in lieu of foreclosure in Florida could be a sound solution to a financial crisis.

Overview

Foreclosure is the term used to describe the legal process of recovering a property once payment on a mortgage loan falls behind or stops. When a contract is used in place of the legal process, it is called “in lieu of foreclosure”.  Either way there is a transfer of property but the process is different. The deed option may even be better. Using the deed in lieu of foreclosure in Florida is a simple process.

The Process

  • Submit an application: in order to obtain a Deed In Lieu Of Foreclosure you must submit an application to your mortgage service company. Submit the application along with all the supporting documents. If you meet all the qualifications the bank will approve your application. (the bank probably won’t approve your application if there are any junior liens on the property from other lenders).
  • Lender Negotiation:  At this point you as the owner of the property and the lender will discuss and come to some agreement through negotiations about you leaving the premises. You will have to leave the property in a good condition. And you will then release the property to the lender, giving up all rights.
  • Documents you will need to sign: the bank will send you documents to sign in order to complete the transaction. Among other things you will need to sign a grand deed in lieu of foreclosure (basically transfer your property to the bank). And an estoppel affidavit (the estoppel affidavit describe the terms of the agreement; such as weather the bank has the right to pursue you for deficiency judgment following the Deed In Lieu Of Foreclosure agreement). In addition you will need to supply proof of income. And you will need to prove that the property won’t and can’t sell for what you owe on the home.
  • Voluntary Decision:  Once you as the property owner sign the deed in lieu contract, the process is done. However, there are situations where an affidavit or a letter must be submitted to show the process was not a forced decision but made in free will.

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Pros and Cons:

There are several advantages, as listed below, to using the Deed in Lieu of Foreclosure; though it does not protect the credit rating and may affect taxes.

Pros:

  • Fast:  The quickest option is a deed in lieu and also the most cost effective. The deed, or contract, will be prepared by the lender so the only cost for using this process lies in the attorney retainer fee for reviewing the legal document(s).
  • Government: Making Home Affordable is a federal initiative that provides people with options regarding foreclosure.  With a deed-in-lieu, there may be relocation funds available for qualifying individuals.
  • No Surprises:  Once you sign the deed in lieu of foreclosure contract, the foreclosure process ends. When communicating directly with the lender there can be no surprise sale of the property. The procedure is clearly outlined so the homeowner knows exactly what to expect. Sometimes a lender will agree for the property owner to stay in their home, for a specific amount of time, after the deed is signed while living without making rental payments.
  • Bankruptcy: many homeowners tempt to file for bankruptcy. But with a Deed in Lieu of Foreclosure, bankruptcy may be avoided with less of a financial strain than often comes with a foreclosure.
  • Legal Forms: there are many legal forms you can use, at least as a guide, for submitting information to the bank; such as Hardship Letters . By using correct documents, some fees may be avoided. (For more legal forms include: Sample Deed in Lieu Cover and Sample Foreclosure Documents.)

Cons:

  • Credit Score:  The impact on your credit score would still occur with a Deed In Lieu of Foreclosure. Reason being, there is a history of missed payments that led to being in the unfortunate position of losing property.  Also, attempting to settle the account for a lesser amount than the original amount paid affects the credit score. Lenders often report with the label “not paid as agreed” which negatively impacts the credit score.

Note: When it comes to future credit, some people have experienced leniency with creditors. Creditors view a Deed in Lieu of Foreclosure less harsh than a standard foreclosure.

  • Taxes: People should prepare for taxes to apply on “income” for the forgiven debt. After the sale of property, you must report the difference between the debt and sale price on the tax return.

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Deficiency Judgments After Deed In Lieu Of Foreclosure in Florida

Deficiency judgment after a Deed In Lieu Of Foreclosure is the difference between the fair market value of the house and the total debt.
Usually Deed In Lieu Of Foreclosure satisfy the debt. But lenders always seek for new ways to get their money back. Unfortunately the state of Florida dose not have a law that prevents the lender from getting deficiency judgments following a Deed In Lieu.
This means that a lender will probably try to hold the borrower liable for the deficiency in debt.

In order to prevent that from happening, the contract must state that the transfer of the deed is in full satisfaction of the debt. if this provision is not in the agreement, the lender may file a law suit against the borrower, after the transaction have been completed.
Effective July First, 2013 the lender has only one year to try and collect deficiency judgments after accepting a Deed In Lieu Of Foreclosure.

Important tip!

Fannie Mae has a spacial program called “Deed-For-Lease”. Under this program a borrower who is eligible for Deed In Lieu and wants to stay in the property as a tenant after the Deed In Lieu process, can lease it from Fannie Mae for 1 year at fair market price. (This program is available only if Fannie Mae owns the borrower’s mortgage). To learn more about this program visit Fannie Mae’s website!

Conclusion:

If you face foreclosure, an options such as a deed-in-lieu in Florida can save time and money. Once you realize this is a quick and minimally stressful process as compared to a standard foreclosure; it might be the “way to go” when relinquishing property due to financial crisis.

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