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Deed In Lieu Of Foreclosure

Deed in Lieu (“DIL”) is another possible option for some property owners facing foreclosure proceedings. DIL a disposition option in which a Mortgagor(s) voluntarily deeds collateral property in exchange for a Release from all obligations under the Mortgage. A DIL of Foreclosure may not be accepted from Mortgagors who can financially make their Mortgage Payments.

Be aware that the DIL is not without complications and there are several possible drawbacks associated with such a procedure, including but not limited to the tax ramifications associated with the cancellation of debt, your credit history, and the loss of the subject real property.

Here are some frequently asked questions relating to the DIL timeline and procedures:

Q #1: When a Mortgagor has been approved for utilizing a DIL of Foreclosure, how much time does a Mortgagor have to complete the DIL?

A: A DIL of Foreclosure must be completed within ninety (90) days of initiation of the process.

Q #2: Does HUD allow $2,000.00 to pay off second Liens when
determining if a Mortgagor is eligible for a DIL?

A: Yes, effective with Mortgagee Letter 2002-13, HUD increased the Mortgagor(s)’ DIL of Foreclosure consideration to not exceed $2,000.00. The funds may be to pay off Junior Liens or to be paid to the Mortgagor upon vacating the property.

Q #3: Can a Mortgagee revert from a Foreclosure process to the acceptance of a DIL from a Mortgagor?

A: This is a business decision the Mortgagee is to decide based upon what is stated in the Mortgagee’s Quality Control Plan.

Q #4: Does a Mortgagee have the ability to accept a DIL of Foreclosure when there is an existing Partial Claim?

A: Yes, Mortgagee Letter 2005-05, Page 37, Paragraph E, condition of Title, states: “Good and marketable title must be conveyed to the Secretary. The Lender must complete a Title Search and may be required to secure release of Junior Liens and/or endorsements to the Title Policy. HUD will not accept Title subject to most Junior Liens including IRS Liens. However, HUD will allow Lien securing re-payment of Section 235 Assistance Payments, Partial Claim Advancements, and Title I Liens.”

The questions above are a mere sampling of some of the concerns you might have right now. If you have any other comments or questions, please take a moment to fill out our information form.