Negotiating Deed In Lieu Of Foreclosure Without Obtaining A Release Of Deficiency Liability Leaves Homeowner In Hot Water

Attorney Jonathan Alper from the Florida Asset Protection Blog offers this caution to financially strapped homeowners when negotiating the transfer of their property to the foreclosing mortgage lender by a deed in lieu of foreclosure:

• A deed in lieu of foreclosure is supposed to be a final settlement between owner and mortgage lender. The lender accepts a deed to the property in consideration for releasing the borrower of any further liability under the loan or mortgage. When my clients tell me they want to offer a deed in lieu they intend for the deed to the lender will end their liability under the mortgage loan.

• When I looked at [one] client’s "deed in lieu" I found that the lender did not include a release of liability, and in fact the document referred to the borrower’s continued liability for a deficiency. This client had negotiated a deed in lieu of foreclosure but not a deed in lieu of deficiency liability. Also, by surrendering title to the property without the bank having to foreclose, the client gave up all the defenses available in a foreclosure action which he could use as leverage to negotiate a complete release. If your mortgage lenders offers you a deed in lieu make sure it’s the real deal. You give them the property back and they release you from any further liability. Anything less may be a trap.

Source: Deeds In Lieu Of Foreclosure : Make Sure Lender Is Offering The Real Thing.