What if I tell my bank that I can no longer keep my condo and I would like a deed-in-lieu of foreclosure?

In forclosure, foreclosure, miami, miami beach, mortgage, real estate, Wenceslao on June 18, 2009 at 12:28 pm

This is a question that comes up often in this market. Obviously, there are several things to consider…

First of all…have you spoken to your lender yet?  What did they say?

Depending on where you are in the foreclosure process (haven’t missed a payment vs. facing a sale date), there are a number of options you may still have.

It is imperative you don’t just do nothing and that instead, you speak with your lender everytime they call. You must realize that, at first, some lenders may still employ escalating tactics to try to collect a debt. Other lenders are much more proactive and make every effort to help their borrowers.

Whatever you do, you must consult at least four people through this process (of course, you must do due dilligence and ask/interview several – even when referred, so you can find one that can meet your needs):

1) Your Lender – This is your first line of defense. See how amicable they are, how proactive and helpfull they seem and what can they offer you as a solution. Know however, that they want to help…but have their (and their investor’s) interest at heart first. Their solutions may not offer you much relief but you must get through this before moving forward.

2) Realtor – Realize that not all real estate agents are Realtors (members of a local board and the National Association of Realtors, who adhere to a strict Code of Ethics). In addition, not all Realtors have received proper training on how to handle distressed property transactions. Seek one with the CDPE designation or Certified Distressed Property Expert( They are over 7500 strong nationwide and you are sure to find one that can help you with your real estate needs while understanding your options and how to handle the sale.

3) Attorney – Just like in all professions, find a specialist in real estate and bankruptcy matters. Preferably one who is also able to file suit in federal court if need be (most bankruptcy attorneys should fall in this category). The reason is simple. You may have heard of doing a “loan modification”. Well, I don’t typically feel a “voluntary” modification (one in which your lender would voluntarily negotiate the terms of the loan with you), is of much use and have found that typically, what the lenders offer in this scenario is of not much help to the borrower. A competent attorney who thoroughly understands mortgage laws (predetory practices, RESPA, Usury and interstate laws, etc), can perform a forensic review of all your loan documents and see if you can turn the tables around in your favor. WARNING: find an attorney that can offer you free or fee-based advise and work. There are many who want to charge you a monthly stippend and will not give you a time frame potentially costing you thousands more over time (a scam if you ask me).

In addition, you may have other legal rights including bankruptcy and you need to know all your angles so that you understand and choose among the best options to you, including how to handle any deficiency judgement if any (a court order in favor of the lender giving the lender a judgement against you for the unpaid balance – which they may choose to collect or sell to collection agencies. They in turn could hound you for years while it still shows up on your credit report, making it almost impossible for your score to ever get better).

Finally, even if you attempt a voluntary modification with your lender and it gets denied, a competent bankruptcy attorney may be able to help you get the loan modified in bankruptcy court if you choose this route.

4) Tax Professional/CPA – This individual will (or should) have a handle on how the “shortage” or deficiency with the IRS. Once the shortage amount is known and with your financial information at hand, they can punch in the numbers with the formula the IRS has created (unless you can be saved by HR3648), to not have to pay (or minimize) your tax obligation if any.

If you are on the verge of a foreclosure sale, you MAY still be able to postpone (stay) the sale but you must ACT. The judge will only empathize when they see you’re trully taking matters into your hands and trying to remedy the situation. Otherwise, they’ll agree to a speedy process and cut you no slack.

One of your options is in fact doing what you asked about here: to give the property back. This is called giving your lender the deed-in-lieu of foreclosure (or giving them back the deed in exchange for not pursuing the foreclosure). This alternative is better than a full blown foreclosure but arguably more damaging than pursuing a Short Sale (selling the property for less than what you owe).

Each process is different and requires a unique approach. Speaking with these experts in their respective fields (instead of uncle Lou or cousin Mary), about your specific situation details will highly improve the chances of success for you.

There may still be several options available to you, but you must take control and ACT now and remember…Luck, is when Preparation Meets Opportunity.


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