Common Terminology:LOSS MITIGATION DEED IN LIEU OF FORECLOSURE LOAN MODIFICATION LOAN RESTRUCTURING PARTIAL CLAIM LOAN REPAYMENT PLANS SPECIAL FORBEARANCE SHORT SALES CASH FOR KEYS BANKRUPTCY DEBT NEGOTIATION
DEED IN LIEU OF FORECLOSURE
The Deed in Lieu of Foreclosure (DIL) is an option in which a Borrower voluntarily deeds their collateral property in exchange for a release from all obligations under the mortgage. A DIL of Foreclosure may not be accepted from Borrowers who can financially afford their mortgage payments. The principal advantage to the borrower is that it immediately releases the Borrower from most or all of the personal indebtedness associated with the defaulted loan. The Borrower also avoids the public notoriety of a foreclosure proceeding and may receive more generous terms than he/she would in a formal foreclosure. In order to be considered a deed in lieu of foreclosure, the indebtedness must be secured by the real estate being transferred. Both sides must enter into the transaction voluntarily and in good faith. The settlement agreement must have total consideration that is at least equal to the fair market value of the property being conveyed. Sometimes, the lender will not proceed with a deed in lieu of foreclosure if the outstanding indebtedness of the borrower exceeds the current fair value of the property. Other times, lenders will agree since they will end up with the property anyway and the foreclosure process is costly to the lender. Because of the requirement that the instrument be voluntary, lenders will often not act upon a deed in lieu of foreclosure unless they receive a written offer of such a conveyance from the borrower that specifically states that the offer to enter into negotiations is being made voluntarily. This will enact the parole evidence rule and protect the lender from a possible subsequent claim that the lender acted in bad faith or pressured the borrower into the settlement. Both sides may then proceed with settlement negotiations.