Alternative Exit Strategies—Deed in Lieu of Foreclosure

In our prior two posts, (What documentation should I receive from my lender prior to a foreclosure mediation? and What documentation do I need to produce for a foreclosure mediation?) we addressed the documents that lenders and borrowers have to produce as a part of Oregon’s new mediation program. However, there is an old adage that “numbers never lie.”  After collecting all of the required documents, it will sometimes become abundantly clear that the numbers simply do not add up and a loan modification is not likely. There can be a number of reasons—from significantly reduced property values to loss of income due to job loss—but sometimes the best strategy (if not the only strategy) is to consider an exit strategy.

We have all heard about people who just “walked away” from their mortgage. Just to be very clear, walking away from your mortgage is NOT an exit strategy. The fact that you have walked away from your home does not mean you have walked away from the legal liability for your home. Quite the contrary. What you might have done by walking away is walk right into a very large money judgment. To draw an analogy, walking away from your home is just like refusing to pay that annoying parking ticket. Just because you ripped it up and threw it in the trash (don’t ever do that by the way), does not mean that the fine is not still out there waiting...waiting...waiting....

Just.

For.

You.

So what is a viable exit strategy? Two of the most commonly used exit strategies are short sales and deeds in lieu of foreclosure. In this blog, we will explain what a “deed in lieu of foreclosure” is, how it works, and whether or not this is a strategy you should consider.  

Simply put, a deed in lieu of foreclosure is a transaction where a homeowner voluntarily transfers title (the deed) to the property to the lender in exchange for a release from the mortgage obligation. Before accepting a deed in lieu of foreclosure, lenders usually require that homeowners try to sell the home first. If the home sells for the mortgage amount (or more), then problem solved. If not, then a deed in lieu of foreclosure might provide a quick, relatively straightforward resolution that avoids the time and expense associated with a foreclose action.

If your lender agrees accepts a deed in lieu of foreclosure, there are legal documents that the parties will have to execute. These documents generally include: (1)  a deed that will transfer legal ownership of the property to the lender and (2) an affidavit that memorializes the terms of the parties agreement. This agreement should explicitly include language that the deed in lieu of foreclosure fully satisfies the debt and the lender has no right to seek a deficiency judgment against the homeowner. The “deficiency” in this case is the difference between the current fair market value of the home and the total debt.

Once this process is completed, the homeowner can then walk away from the home with no further legal liability to the lender. (There may be tax ramifications however, so you should also seek the advise of a tax advisor before finalizing any documents). One case where this might be the best option is if your home value is hopelessly upside down. But that is just one such scenario. If you have questions about whether or not a deed in lieu of foreclosure is the right option for you, please call Garland Griffiths Knaupp at (503) 846-0707.

We’re here to help.

10 ways that an hour with me can save you thousands

(c) 2010 Benjamin D. Knaupp
Attorney at Law
Admitted in Oregon since 1997

Since I developed my special 1 hour consultation for people in a debt crisis, I have completed over 70 consultations. Consider these 10 ways that spending an hour with me could save you thousands. Then ask yourself if you can afford NOT to pass up this offer at only $149.

1. Should you pay money to a law firm or other company for assistance with a home loan modification? I can tell you whether you’re likely to succeed and whether its worth the cost and risk. Sometimes over a thousand dollars in fees.

2. Some lawyers advertise bankruptcy as the solution to foreclosure. Often a bankruptcy is not needed, saving your future credit and at least $1,500 in legal fees.

3. Should you pay your property taxes or not? The answer depends on several factors. The right answer could save you thousands.

4. Lenders, salesmen, your bank, and even many realtors will tell you a “short
sale” will solve your debt problems, and help you avoid foreclosure. However, many lenders are not willing to release you from the full debt. This means that after a short sale, you could still face a collections lawsuit for the unpaid debt – potentially tens of thousands of dollars.

5. How long can you stay in your property when a foreclosure is in process? Is it better to “walk away” from the home or stay in the home? The answer could save you months in rent.

6. Some banks are offering “trial modifications” which require that you make payments during a trial period in the hope that a permanent modification will be granted. Will your hopes be rewarded, or dashed? The answer may surprise you, and could save thousands in payments.

7. Because a foreclosure sale is a public notice, you will receive dozens of solicitations from a variety of people offering solutions. Can they be trusted? With my advice you can avoid scams and better understand your options.

8. When a foreclosure is imminent, should you continue to pay HOA dues or not? The answer could save you hundreds.

9. If you are recently divorced, nearing divorce, or in a non-traditional relationship, how will questions of liability for the debts be resolved? Many clients find they got a raw deal only too late. With my advice you can protect yourself.

10. If you have other properties or assets at risk, can your lender sue for a judgment? How can you protect your assets from creditors?

For answers to these and other questions, contact me via my website to schedule a consultation. If you live in Beaverton, Hillsboro, or Portland I am conveniently located near the Tanasbourne shopping area.

Dealing with Foreclosure in Oregon, Part 7

Dealing with Foreclosure in Oregon
(c) 2009 Benjamin D. Knaupp
Attorney at Law
Admitted in Oregon since 1997

#7. Should I file for bankruptcy, and when?
Some attorneys are advertising bankruptcy as a way to “stop” foreclosure. There are two kinds of bankruptcy filings available to individuals for personal debts: Chapter 7 and Chapter 13, and they both produce very different outcomes. A Chapter 7 bankruptcy will delay–but not prevent a foreclosure sale. The delay may be only 3-6 months. A Chapter 13 bankruptcy allows the debtor to follow a plan to pay his creditors over a 3- to 5-year period. Because a bankruptcy filing will stain your credit report for up to 10 years, it is often better to avoid filing for bankruptcy, depending on your total asset and debt situation. I can help you understand the different bankruptcy options, and whether bankruptcy is right for you.

Next up is part 8: How do the debts of a spouse or ex-spouse affect me?
For all 8 questions stay tuned for updates to this blog or go to my legal website. You can also watch my video explaining the 8 foreclosure questions in brief. If you live in Beaverton, Hillsboro, or Portland Oregon, give me a call with your questions or comments, or post a comment to this blog.

Dealing with Foreclosure in Oregon, Part 3

Dealing with Foreclosure in Oregon
(c) 2009 Benjamin D. Knaupp
Attorney at Law
Admitted in Oregon since 1997

#3. What is a deed in lieu of foreclosure?
If your lender won’t agree to modify your loan, and you can’t “short sell” your home, some lenders–typically small lenders like credit unions–may accept a deed in lieu of foreclosure. This could be a good option for a homeowner who needs to move out of the home and doesn’t need it as a residence.
A deed in lieu of foreclosure is a legal agreement between you and your lender whereby you transfer title to the property to the lender so that the foreclosure sale is not necessary. Lenders are more willing to agree to a deed in lieu of foreclosure if their loan is the only lien against the property, and if your loan is close to the fair market value of the home. A deed in lieu of foreclosure agreement should be in writing and should be carefully reviewed by your attorney to make sure it protects you and not just your lender. They key protection you need is protection against a deficiency action.
A second key protection you need is a promise by the lender to report your mortgage debt as “Paid - Settled” to the credit reporting agencies. The primary benefit of a deed in lieu of foreclosure is that if negotiated properly, a foreclosure sale is not recorded on your credit report, thus preserving your credit score. Some lenders are reporting a deed in lieu of foreclosure the same as a foreclosure sale, which would not benefit you.

Next up in part 4 is legal defenses to a foreclosure action. For all 8 questions stay tuned for updates to this blog or go to my legal website. You can also watch my video explaining the 8 foreclosure questions in brief. If you live in Beaverton, Hillsboro, or Portland Oregon, give me a call with your questions or comments, or post a comment to this blog.