Mortgage Forum

Zino

Deed In Lieu of Foreclosure

The Deed-in-Lieu of Foreclosure allows a mortgagor in default, who does not qualify for any other HUD Loss Mitigation option, to sign the house back over to the mortgage company. Ref: Mortgage letter 2000-05 and 2002-13.

FACTS

• Mortgagee can pay, not to exceed $2,000 compensation, to the mortgagor.

• The $2,000 compensation is not paid to mortgagor until they have vacated the property.

• Mortgagor(s) compensation must be applied to any junior lien(s) placed on the mortgage property.

• Mortgagor must agree to “written” agreement of property conditions.

• Mortgagees may determine that a “current” mortgagor is eligible for the Deed-in-Lieu of foreclosure option.

• Under no circumstance should the mortgagor be encouraged to default on their mortgage for the purpose of qualifying for this option.

• Deed-in-Lieu must be completed or foreclosure initiated within six (6) months of the date of default, unless the mortgagee qualified for an extension of time by first trying a different loss mitigation option or an extension of time was approved by HUD prior to the expiration of the time requirement.

• If the Deed-in-Lieu follows a failed special forbearance agreement or the
preforeclosure sale program, then the Deed-in-Lieu must be completed or
foreclosure initiated within 90 days of the failure.

ELIGIBILITY

• The property must be owner-occupied, no “walk-a ways” or investment properties.

Exceptions: when it is verifiable that the need to vacate was related to the cause of default (job loss, transfer, divorce, death), and the subject property was not purchased as a rental investment, or used as a rental for more than 12 months.

• The mortgagor must be 31 days delinquent or more at the time of the Deed-in-Lieu Warranty Special Deed is executed.

• The mortgagor must provide documentation of a reduction in income or an increase in living expense, and documentation, which verifies the borrowers need to vacate the property.

• Mortgagee will develop a written Deed-in-Lieu of Foreclosure Agreement, which is to be signed by both the mortgagor and mortgagee, which contain all of the conditions under which the Deed will be accepted.

DEED-IN-LIEU AGREEMENT

• Mortgagor(s) does not own any other FHA-insured mortgages and/or or mortgage held by HUD.

• Agreed upon transfer date of property to mortgagee within the Agreement.

• Notification to the mortgagor that there may be income tax consequences as a result of the Deed-in-Lieu of Foreclosure.

• Acknowledgment that mortgagor(s) who complies with all of the requirements of the Agreement shall not be pursued for deficiency judgments.

• Mortgagor is to provide a statement describing the general physical condition in which the property will be conveyed.

• Mortgagor will convey property vacant and free of personal property unless HUD has approved an occupied conveyance.

• Itemization of the keys, built-in fixtures and equipment to be delivered to the mortgagee on or before the transfer date.

• Mortgagor(s) agreement to provide evidence that certain utilities, assessments, and homeowner’s association dues are paid in full to the transfer date unless otherwise agreed to by the parties.

• The dollar amount of consideration payable to and/or on behalf of the mortgagor is not to exceed $2,000.

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