As a homeowner struggling with mortgage payments and facing the looming prospect of foreclosure, you likely have a lot of pressing questions as you try to consider all of your options. What can you do to help avoid the foreclosure process? Is it going to be possible to keep your home? Are there any courses of action that can allow you to quickly gain some relief from your mortgage obligation?
To that last point? Many borrowers may find themselves considering a deed in lieu of foreclosure as one potential way to avoid a foreclosure lawsuit. A deed in lieu can be offered before a foreclosure suit is filed, and may be available after the formal foreclosure process begins, as well.
But what is a deed in lieu of foreclosure? What makes this remedy work for borrowers and lenders, what are its limits and drawbacks, and where can you turn for more information? Let’s explore this important concept in some more depth:
What is a Deed In Lieu of Foreclosure?
A deed in lieu of foreclosure, or a deed in lieu, is a potential remedy for borrowers under the Illinois Mortgage Foreclosure Law (IMFL).
In this arrangement, the homeowner conveys the mortgaged property to their lender or bank, granting them the deed and title to the property as a way of satisfying their outstanding mortgage obligation. Generally speaking, in exchange for accepting the deed in lieu, the lender waives their ability to pursue the borrower for any deficiency. In most cases, a deed in lieu of foreclosure ends the borrower’s liability for their mortgage debt (unless they reach another agreement with their lender to the contrary).
For borrowers and lenders alike, a deed in lieu of foreclosure can offer some key advantages. In both cases, a deed in lieu can allow both parties to avoid the foreclosure process, which can be time-intensive, expensive, and lead to bad publicity for all groups involved. A deed in lieu can allow borrowers to get out from their costly obligations quickly, and with fewer complications, in many cases. Similarly, for lenders, a deed in lieu can allow the company to assume ownership of the property fairly quickly, and without the many moving parts associated with obtaining a foreclosure judgment. As a result, the lender can quickly act to remarket the property, assume management duties, or take other steps to maximize the economic value and utility of the asset.
Is a Deed in Lieu of Foreclosure Always Accepted?
For borrowers facing judgment, it’s important to keep in mind that while a deed in lieu can be an effective remedy, it is not always going to be the right fit for your unique circumstances. In particular, it’s key to remember that lieu deed offers can be, and often are, rejected by lenders.
A lender or bank may not accept a deed in lieu for any number of reasons. Most commonly? If a borrower has a second or third mortgage on the property, the lender will often not be able to accept a deed in lieu. In these cases, the lender would have to deal with those mortgages, rather than assuming free title to the property. Similarly, if there are any other encumbrances or liens on the property (such as judgment liens or contractor’s liens), the lender may require you to remedy them before considering a deed in lieu. In some cases, lenders may prefer to go through the foreclosure process; in others, they may want to add further terms or stipulations which you, the borrower, may not be able or willing to meet.
At the same time, for borrowers, it’s important to take some time to consider whether a deed in lieu is ultimately going to be the right solution for your unique needs, or if it’s better to seek another course of action, ranging from a short sale to pursuing consuming bankruptcy. Talking with a local attorney with experience in debt and real estate matters may help provide some perspective. Ultimately, it’s crucial to note that a deed in lieu can impact a borrower’s credit and their ability to buy a home (though often less than a foreclosure). Depending on the specifics, a deed in lieu offer may have tax implications, and can certainly have lasting personal and lifestyle effects, as well.
The Importance of Talking With an Experienced Attorney
A deed in lieu of foreclosure can be an effective remedy for borrowers facing mortgage debt – but it’s important to understand that this mechanism can be complicated, and may have serious consequences in the short term and the long.
For borrowers looking to understand all of their options when it comes to foreclosures, debt relief, bankruptcy, and real estate matters, one of the most effective steps may be to consult with an experienced local attorney. An attorney can offer counsel and guidance, observing your situation and empowering you to find the right solution for your unique circumstances.
Above all, remember that no two cases will ever be exactly alike! When it comes to debt relief, foreclosures, and real estate, you may be surprised by just how much each individual’s distinct circumstances can come into play.
If you have any questions about your specific situation, don’t hesitate to get in touch with the attorneys and staff of the Gunderson Law Firm to keep the discussion going. The Gunderson Law Firm specializes in bankruptcy and real estate law. Our team possesses unparalleled expertise and insight, reinforced by years of experience and long-term connections throughout Chicago’s real estate, finance, and insurance industries.