Issues With The Push For Deed-in-Lieu

Recently, Bank of America sent out close to 100,000 solicitations to distressed homeowners offering them a chance at a deed-in-lieu transaction. “Deed-in-lieu” means giving the deed to your home to a lender in order to circumvent the foreclosure process. You get to walk away from your house, and the lender states the debt resolved because you returned your collateral. Many lenders have announced that they will offer a variety of incentives for this type of transaction because it saves them a great deal of time and money in processing costs even though they may take a hit when they try to sell the home in today’s market.

Some short sale investors are viewing this new trend with concern, particularly since some lenders have stated that they find deed-in-lieu transactions preferable to short sales since short sales take a long time. Additionally, homeowners who are going to lose their homes no matter what may find this to be an acceptable alternative since it is being portrayed as a route to 100% resolving the debt rather than stressing about being followed up with later for the difference just when you have gotten back on your feet.

As a short sale investor, you should not stress about this. There are several homes that will still go through the short sale process, and not all circumstances are going to qualify for a deed-in-lieu transaction. You can point out to homeowners who may be backing out of a short sale that unless the wording in their deed-in-lieu agreement specifies that the debt is considered entirely resolved by the return of the property, as this may not be the case.

While deed-in-lieu and a short sale do go on your credit history and impact your credit score, a deed-in-lieu remains on your history for a full 7 years, and you may have to request that it be removed. According to new legislation, short sales may be removed as soon as 3 years.

Certainly, some homeowners may opt for a deed-in-lieu transaction instead of a short sale transaction with you. However, the current deed-in-lieu “push” could actually be a positive, since it may put a dent in homes that lenders were unwilling to short sell anyway. Simply be prepared to answer questions about this style of transaction, then continue doing your short sales and helping people in trouble resolve their personal housing issues.

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