Deed in Lieu of Foreclosure

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Deed in lieu of foreclosure

If the person you sold property to on an owner finance loan no longer wants the property or can no longer pay for the property, a Deed in Lieu of Foreclosure may be a good option to take the property back and cancel the loan.

If you have a secured real estate loan, and the person who owes you the money does not pay the loan, you may need to foreclose your lien by selling the property at public auction. The money received at the auction is applied to the loan.

A foreclosure can be expensive and could result in a lawsuit or bankruptcy.

Good to know: An option to a public auction foreclosure is a Deed in Lieu of Foreclosure. The borrower simply transfers the property back to the lender and the lender cancels the debt.  This is sometimes referred to as a “friendly foreclosure” or a “voluntary repossession.” It can avoid lawsuits and bankruptcy.

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Basically, the borrower simply gives the property back. The borrower signs a Deed in Lieu of Foreclosure, gives you the keys and moves out.

Note: Keep in mind, that most mortgage companies will not accept a Deed in Lieu of Foreclosure. If you owe money to a mortgage company, a Deed in Lieu is rarely an option. Regulations may require a mortgage company to foreclosure even though the Borrower no longer wants the property and does not live in the property anymore.

On the other hand, if you owe money to a friend, family member, or a private lender, you may be able to transfer the property back to the lender and cancel the debt using a Deed in Lieu of Foreclosure.

But all parties, Lender and Borrower must agree. The lender must agree to accept the property AND the borrower must agree to transfer the property, return the keys, and vacate the property.

Without this mutual agreement, there can be no valid Deed in Lieu of Foreclosure. A Borrower cannot simply mail the mortgage company a Deed in Lieu of Foreclosure and expect the loan to be canceled.

A Borrower may purchase a Deed in Lieu of Foreclosure, sign it and mail it, but the mortgage company has the right to refuse to accept the deed and continue with the foreclosure and eviction process. It is a waste of money for a Borrower to pay for a Deed in Lieu of Foreclosure without first getting the Lender’s written permission.

Good to know: Private lenders may prefer a Deed in Lieu of Foreclosure because they get the property back quickly without risk of being sued or having the borrower file bankruptcy. In this case, the Borrower should let the Lender prepare and pay for the Deed in Lieu of Foreclosure.

Borrowers usually prefer to use a Deed in Lieu. It may keep the loan default off of their credit reports and it may prevent an eviction. The Borrower and Lender can simply agree on an orderly move out of the property.

Good to know: Sometimes the parties may agree to convert the loan to a rental agreement. The Borrower transfers the property back to the Lender and then rents it from the Lender.

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deed in lieu

The term “Deed in Lieu” is just a shorter way of saying Deed in Lieu of Foreclosure. Homeowners agree to sign a deed in lieu to avoid foreclosure. When a seller accepts this deed, the homeowner is no longer obligated to repay the mortgage.

What is Deed in Lieu of Foreclosure

A Deed in Lieu of Foreclosure is a complex document and should be prepared by a lawyer. This is a formal legal document used to surrender real estate property from the Buyer back to the Lender or Seller.

A copy of the Promissory Note and Deed of Trust which was signed by the Borrower and which is being canceled will both need to be described in the Deed in Lieu of Foreclosure.

By signing the Deed in Lieu of Foreclosure, the Borrower is legally transferring title to the property back to the Lender in exchange for the cancelation of the unpaid balance owed on the Promissory Note secured by the property.

By accepting the Deed in Lieu of Foreclosure, the Lender is legally accepting the property as payment in full of the unpaid balance due on the promissory note.

Deed in Lieu of Foreclosure in Texas

Using a Deed in Lieu of Foreclosure in Texas, the Lender retains the right to conduct a “Friendly Foreclosure” after accepting the Deed in Lieu if other liens are found on the title to the property. These other liens may be second liens, home improvement liens, judgment liens, child support liens and tax liens.

If other liens are found on the title to the property, the Lender with a Deed in Lieu of Foreclosure retains the right to foreclosure its lien on the property which should “wipe out” or remove any liens filed after the Lender’s lien

Other liens may include the following:

  • Federal Tax Liens
  • Judgment Liens
  • Mechanic’s Lien
  • Home Equity Liens

Even if a foreclosure is needed after the Lender accepts a Deed in Lieu to remove liens or clear title, the fees for the foreclosure should be substantially less because the Borrower has agreed not to contest or otherwise challenge the foreclosure. Also, the Borrower should not be able to file for Federal Bankruptcy Protection to stop the sale of the property.

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A contested foreclosure on a loan not owned by a mortgage company may cost up to $1500 or more. If the Borrower files a lawsuit to stop the foreclosure, or files for Federal Bankruptcy Protection, the legal fees along could skyrocket, plus the Borrower will remain in the property without paying for the property.

A Deed in Lieu of Foreclosure costs $300. County recording fees are usually about $38.

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Deed in lieu of foreclosure prepared for $300

Do you have questions about a Deed in Lieu of Foreclosure? Call and speak directly with attorney Scott Steinbach at 972-960-1850. Or email him at scott@texaspropertydeeds.com.

R. Scott Steinbach is licensed in the state of Texas. Board Certified by the Texas Board of Legal Specialization in Residential Real Estate Law. AV Preeminent rated by Martindale-Hubble. Peer rated for Highest Level of Professional Excellence.

Texas Property Deeds is a service of The Steinbach Law Firm.

The Steinbach Law Firm is a Texas Real Estate Law Firm. We prepare all documents for any real estate transaction in Texas.

Board Certified in Residential Real Estate Law in Texas. For Texas Property Deeds
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