How Does A Deed Foreclosure In Lieu Help Lenders?


Lenders need security during tough economic toughs as well as borrowers, and deed foreclosure in lieu is one way lenders ensure that they will receive mortgage payments in a timely manner. Deed foreclosure in lieu also helps both lender and borrower avoid costly legal proceedings.


Foreclosure is a legal procedure in which the lender can file a case of default against the borrower in the court of law. The borrower generally borrows a loan from the lender by placing the house on mortgage. In case the lender defaults on the repayment of the loan, then the lender can take legal action by acquiring the property. The borrower is generally given a 90 day time period after the due date to repay his money to the lender. A Deed Foreclosure in Lieu may help the lender a great deal in these circumstances.


Helpful Laws

The lender can file a case anytime after the due date. There are two laws which favor the lender: judicial foreclosure and foreclosure by power of sale. The judicial foreclosure calls for an auction which is presided over by the court. The power of sale sanctions the lender with all rights to the property.

Timely mortgage payments can help in avoiding foreclosure. But certain unexpected circumstances like job loss, illness, medical emergency, death, divorce, etc can lead to foreclosure.

The best way to avoid a foreclosure is of course by making sure that a Notice of Default is not filed by the lender. In general, lenders would not want to foreclose, but end up doing it to safeguard their interests. So the best way to stop foreclosure is by speaking with the lender and convincing them against filing for foreclosure.


Time May be on your Side

Depending on the situation the lender might increase the time limit or forgive a payment, especially if you offer a Deed Foreclosure in Lieu. In this case the time constraint is temporarily waived off and another method of repayment plan can be worked out.


The lender can also extend the amortization period or perform a note modification which would in turn affect the terms of the loan. At times another loan can be taken in order to finish off the previous loan. This is referred to as partial claim. Refinance is the method of adding back finance back to the loan balance. These methods involve direct contact with the lender before they file for a Default.

In case the Notice of Defaulthas been filed, then a certain time period will be offered to pay the amount along with the cost of filing the foreclosure and stopping the foreclosure. Foreclosure can be stopped by selling off the home. Selling the home by means of real estate agents would fetch more money than auctioning it out. If the amount due is lesser than the cost of the home, then a Short Sale would be sufficient. By this the house is temporarily sold off for the amount and then the owner needs to pay and buy the home again.


Deed Foreclosure in Lieu

The other method would be to sign a Deed Foreclosure in Lieu. This is a deed in which the borrower transfers the right of the property to the lender in order to pay off a loan that is in default, to prevent the foreclosure.

This is in advantage to both parties. The lender does not have to haggle with the borrower nor do they need to get mixed up too far on legal proceedings. This also prevents the need for bankruptcy or repossession. As for the borrower, it grants freedom from the loan and saves them from foreclosure.

The owner can offer the lender the deed of the property and the lender can instead forgive the mortgage and cancel the foreclosure. At times the borrower can stay in the house and make some deal until they eventually wish to move out of the house. They no longer own the rights to the house and effectively have a landlord or landlady, but at least they have a roof over their heads!

Resources:
http://en.wikipedia.org/wiki/Deed_in_lieu_of_foreclosure
http://www.wealthnetwork.com/products/prod_foreclose/deed_lieu_foreclose.htm
http://www.thinkglink.com/Deed_In_Lieu_Of_Foreclosure_Drops_Credit_Score.htm