Difference between revisions of "Negotiate a Deed in Lieu of Foreclosure"
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When you stop making mortgage payments, the bank can bring foreclosure proceedings. But what if you want to avoid the hassle and expense? One option is to sign the deed over to the bank and walk away. If negotiated properly, a deed in lieu of foreclosure can relieve you of all financial obligations related to your home. Even better, the bank might agree not to report the foreclosure to the credit reporting bureaus, which means it won’t show up on your report. | When you stop making mortgage payments, the bank can bring foreclosure proceedings. But what if you want to avoid the hassle and expense? One option is to sign the deed over to the bank and walk away. If negotiated properly, a deed in lieu of foreclosure can relieve you of all financial obligations related to your home. Even better, the bank might agree not to report the foreclosure to the credit reporting bureaus, which means it won’t show up on your report. | ||
| − | [[Category:Real Estate]] | + | [[Category: Real Estate]] |
==Steps== | ==Steps== | ||
===Gathering Required Information=== | ===Gathering Required Information=== | ||
| − | #Contact your lender’s loss mitigation department. Find the company that owns your mortgage and call them.<ref>http://www.alllaw.com/articles/nolo/foreclosure/steps-completing-deed-lieu.html</ref> Explain your situation and ask for a loss mitigation packet. | + | #Contact your lender’s loss mitigation department. Find the company that owns your mortgage and call them.<ref name="rf1">http://www.alllaw.com/articles/nolo/foreclosure/steps-completing-deed-lieu.html</ref> Explain your situation and ask for a loss mitigation packet. |
#*Speak generally. For example, you can say, “Hi. I’m Dianne Smith and I have a mortgage with you for my home. I’ve lost my job and can’t make payments anymore. I’d like to look into a deed in lieu of foreclosure.” | #*Speak generally. For example, you can say, “Hi. I’m Dianne Smith and I have a mortgage with you for my home. I’ve lost my job and can’t make payments anymore. I’d like to look into a deed in lieu of foreclosure.” | ||
| − | #Collect financial information. You’ll need to show the bank many financial documents, which you should gather as soon as possible. For example, find the following:<ref | + | #Collect financial information. You’ll need to show the bank many financial documents, which you should gather as soon as possible. For example, find the following:<ref name="rf1" /> |
#*recent tax returns | #*recent tax returns | ||
#*proof of all income, such as two recent paystubs or a profit-and-loss statement | #*proof of all income, such as two recent paystubs or a profit-and-loss statement | ||
| − | #*proof of monthly debt payments for car loans, student loans, and credit cards< | + | #*proof of monthly debt payments for car loans, student loans, and credit cards<ref>https://www.knowyouroptions.com/avoid-foreclosure/options-to-leave-your-home/mortgage-release</ref> |
#*list of monthly expenses | #*list of monthly expenses | ||
#*two recent statements for all bank accounts | #*two recent statements for all bank accounts | ||
#*mortgage statement | #*mortgage statement | ||
| − | #Identify your hardship. You’ll only qualify for loss mitigation if you have suffered a hardship beyond your control. For example, the following are common hardships that cause people to fall behind on their mortgage payments:<ref | + | #Identify your hardship. You’ll only qualify for loss mitigation if you have suffered a hardship beyond your control. For example, the following are common hardships that cause people to fall behind on their mortgage payments:<ref name="rf1" /> |
#*lost job | #*lost job | ||
#*reduced income | #*reduced income | ||
| Line 21: | Line 21: | ||
#*natural disaster (such as an earthquake, landslide, tornado, etc.) | #*natural disaster (such as an earthquake, landslide, tornado, etc.) | ||
#*adjustable rate mortgage that increases | #*adjustable rate mortgage that increases | ||
| − | #Draft a hardship affidavit or letter. You’ll need to submit one of these documents to your lender as part of your application.<ref | + | #Draft a hardship affidavit or letter. You’ll need to submit one of these documents to your lender as part of your application.<ref name="rf1" /> Your lender may have a printed affidavit form that will ask you to check off certain boxes.<ref name="rf2">https://www.nationstarmtg.com/reference_documents/hardship_affidavit.pdf</ref> |
| − | #*Alternately, you might need to draft a letter in which you summarize your hardship. If you are struggling financially, explain how this is likely a long-term hardship.< | + | #*Alternately, you might need to draft a letter in which you summarize your hardship. If you are struggling financially, explain how this is likely a long-term hardship.<ref name="rf1" /> |
| − | #*A nice touch is to mention how drawn-out and expensive the foreclosure process can be.< | + | #*A nice touch is to mention how drawn-out and expensive the foreclosure process can be.<ref name="rf3">http://savethecave.com/sample-foreclosure-letters/deed-in-lieu-hardship-letter/</ref> |
#Consider your other options. Although you want to go ahead with the deed in lieu of foreclosure, you should at least consider your other options. Talk to the loss mitigation department about other options such as short sales, [[Negotiate Mortgage Forbearance|forbearances]], and loan modifications. | #Consider your other options. Although you want to go ahead with the deed in lieu of foreclosure, you should at least consider your other options. Talk to the loss mitigation department about other options such as short sales, [[Negotiate Mortgage Forbearance|forbearances]], and loan modifications. | ||
#*You can also meet with a HUD counselor to discuss your options. Find a HUD-approved counselor here: https://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm. Click on your state. | #*You can also meet with a HUD counselor to discuss your options. Find a HUD-approved counselor here: https://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm. Click on your state. | ||
| − | #*You may be eligible for the deed-for-lease program if Fannie Mae owns your mortgage. Under this program, you can stay in the home for up to 12 months and lease it at the market rate.<ref | + | #*You may be eligible for the deed-for-lease program if Fannie Mae owns your mortgage. Under this program, you can stay in the home for up to 12 months and lease it at the market rate.<ref name="rf1" /> |
===Negotiating with the Bank=== | ===Negotiating with the Bank=== | ||
#Submit your application. Go over your paperwork and check to make sure the information is complete and accurate. Then make a copy for your records. Mail the application and copies of supporting documents to the address provided. | #Submit your application. Go over your paperwork and check to make sure the information is complete and accurate. Then make a copy for your records. Mail the application and copies of supporting documents to the address provided. | ||
| − | #Read the broker’s price opinion. After you submit an application, the bank will order a broker’s price opinion, which determines the fair market value of your property.<ref | + | #Read the broker’s price opinion. After you submit an application, the bank will order a broker’s price opinion, which determines the fair market value of your property.<ref name="rf1" /> Look at this opinion closely. It will determine whether the bank can sue you after accepting the deed. |
#*For example, you might owe $200,000 on the house. If the fair market value is only $150,000, then the bank may want to sue you for the difference--$50,000. It can seek a “deficiency judgment.” | #*For example, you might owe $200,000 on the house. If the fair market value is only $150,000, then the bank may want to sue you for the difference--$50,000. It can seek a “deficiency judgment.” | ||
#*However, if the house is worth $220,000, then there is no reason for the bank to sue you. | #*However, if the house is worth $220,000, then there is no reason for the bank to sue you. | ||
| − | #Identify your state’s laws. Before negotiating with the bank, you’ll want to know your state’s laws on a bank seeking a deficiency judgment after accepting a deed in lieu of foreclosure. Washington, for example, prevents banks from seeking deficiency judgments.< | + | #Identify your state’s laws. Before negotiating with the bank, you’ll want to know your state’s laws on a bank seeking a deficiency judgment after accepting a deed in lieu of foreclosure. Washington, for example, prevents banks from seeking deficiency judgments.<ref name="rf1" /> |
#*You can find your state’s law online or by meeting with a HUD approved-counselor or private attorney. | #*You can find your state’s law online or by meeting with a HUD approved-counselor or private attorney. | ||
#Demand full satisfaction of the debt. Historically, banks used to relieve borrowers of any deficiency after accepting a deed in lieu of foreclosure. However, more and more banks are suing today for the deficiency amount. You need to negotiate an agreement with the bank that they won’t sue you for any deficiency. | #Demand full satisfaction of the debt. Historically, banks used to relieve borrowers of any deficiency after accepting a deed in lieu of foreclosure. However, more and more banks are suing today for the deficiency amount. You need to negotiate an agreement with the bank that they won’t sue you for any deficiency. | ||
| Line 43: | Line 43: | ||
#*Call up the attorney and schedule a consultation. Ask how much they charge. | #*Call up the attorney and schedule a consultation. Ask how much they charge. | ||
===Completing the Process=== | ===Completing the Process=== | ||
| − | #Try to [[Sell Your Own House|sell your home]]. Some lenders will require that you try to sell your home for the fair market value before they will go ahead with a deed in lieu of foreclosure.<ref | + | #Try to [[Sell Your Own House|sell your home]]. Some lenders will require that you try to sell your home for the fair market value before they will go ahead with a deed in lieu of foreclosure.<ref name="rf1" /> If this is a requirement, you should make your best efforts to sell. |
#*Get your home close to move-in condition. This means fixing obvious hazards, such as exposed wires, holes in the floor, and rickety stairs. But it also means giving your home a thorough clean and possibly a fresh coat of paint. | #*Get your home close to move-in condition. This means fixing obvious hazards, such as exposed wires, holes in the floor, and rickety stairs. But it also means giving your home a thorough clean and possibly a fresh coat of paint. | ||
#*Commit to reaching potential buyers. You can work with a real estate agent, but that costs money. Instead, think of advertising online at websites such as Craigslist. You can also put up fliers at your local grocery store and library. | #*Commit to reaching potential buyers. You can work with a real estate agent, but that costs money. Instead, think of advertising online at websites such as Craigslist. You can also put up fliers at your local grocery store and library. | ||
| Line 50: | Line 50: | ||
#*An exception exists if the same bank happens to own the other lien on the property. | #*An exception exists if the same bank happens to own the other lien on the property. | ||
#*This can be a complicated process. You’ll need to call up the person with the lien and negotiate payment. Then you must confirm that they have released the lien by filing appropriate paperwork. | #*This can be a complicated process. You’ll need to call up the person with the lien and negotiate payment. Then you must confirm that they have released the lien by filing appropriate paperwork. | ||
| − | #Review the estoppel affidavit before signing. This document will explain whether or not the bank is reserving the right to seek a deficiency judgment against you. Accordingly, you should read it carefully and not sign until you agree with the terms of the agreement.< | + | #Review the estoppel affidavit before signing. This document will explain whether or not the bank is reserving the right to seek a deficiency judgment against you. Accordingly, you should read it carefully and not sign until you agree with the terms of the agreement.<ref name="rf5">http://www.nolo.com/legal-encyclopedia/do-i-need-lawyer-deed-lieu-foreclosure.html</ref> |
| − | #*You want the document to say the transaction is “in full satisfaction of the debt” or that the bank agrees not to sue you for a personal judgment.< | + | #*You want the document to say the transaction is “in full satisfaction of the debt” or that the bank agrees not to sue you for a personal judgment.<ref name="rf5" /> |
#*Show this document to your lawyer if you don’t understand it. You only want to sign if you agree with everything in the affidavit. | #*Show this document to your lawyer if you don’t understand it. You only want to sign if you agree with everything in the affidavit. | ||
| − | #Sign a grant deed. This document transfers the property from you to the bank.< | + | #Sign a grant deed. This document transfers the property from you to the bank.<ref name="rf1" /> The bank should prepare this document, though you can show it to your lawyer as well. |
| − | #*The deed in lieu of foreclosure process takes about 90 days to complete.< | + | #*The deed in lieu of foreclosure process takes about 90 days to complete.<ref name="rf1" /> |
| − | #Clean your home. You shouldn’t trash the house or leave it in terrible condition. Although you don’t need to do a total rehab to your home, you should do the following before leaving:< | + | #Clean your home. You shouldn’t trash the house or leave it in terrible condition. Although you don’t need to do a total rehab to your home, you should do the following before leaving:<ref name="rf1" /> |
#*remove debris | #*remove debris | ||
#*clear out all trash, inside and out | #*clear out all trash, inside and out | ||
| Line 61: | Line 61: | ||
#*remove all personal belongings | #*remove all personal belongings | ||
==Tips== | ==Tips== | ||
| − | *There are tax consequences involved with a deed in lieu of foreclosure. For example, you may have to report any deficiency balance as income. You should meet with an accountant if you have questions.< | + | *There are tax consequences involved with a deed in lieu of foreclosure. For example, you may have to report any deficiency balance as income. You should meet with an accountant if you have questions.<ref name="rf6">https://www.wellsfargo.com/mortgage/manage-account/payment-help/deed-in-lieu/</ref> |
| − | *You can negotiate a deed in lieu of foreclosure even if the foreclosure process has already started.< | + | *You can negotiate a deed in lieu of foreclosure even if the foreclosure process has already started.<ref name="rf6" /> |
== Related Articles == | == Related Articles == | ||
*[[Negotiate With Your Lender to Keep Your Home]] | *[[Negotiate With Your Lender to Keep Your Home]] | ||
