In this 2 part series, I’m going to be explaining the benefits of a deed in lieu of foreclosure compared to a foreclosure.
The topics I’ll be covering today are:
- Deed in Lieu vs Foreclosure
- A Deed in Lieu Is a Voluntary Action
- What Is Foreclosure?
- The Foreclosure Process
- A Foreclosure Can Result in a Deficiency Judgment
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Deed in Lieu vs Foreclosure
I’m Ted Thomas, and I’ve been involved with distressed real estate for over 3 decades. My specialty is tax defaulted property and tax lien certificates. Most of what I discuss comes from that perspective.
I am not an attorney at law, real estate broker or financial advisor. I’m an investor, guide, and author.
This is a discussion of a deed in lieu of foreclosure, what you need to know and how it works. It’s a process that lenders believe they benefit from, and the seller also believes they will benefit. In other words, both are receiving what they perceive as benefits.
Before we discuss the deed in lieu, let’s talk about foreclosure so that you can better understand the benefits of a deed in lieu of foreclosure.
A Deed in Lieu Is a Voluntary Action
There is a significant amount of confusion about deed in lieu of foreclosure. I’ll try to clear up that confusion. Let me start by stating that a deed in lieu of foreclosure is a voluntary act or action by a property owner.
The real estate foreclosure business has been around for 100’s of years. There are many lenders, private party lenders, bank lenders, and institutional lenders. The foreclosure is the consequence of a borrower not paying the agreed installment on a loan.
What Is Foreclosure?
The lender prior to funding the mortgage, trust deed or contract of sale will require the borrower to sign a clause to pledge the asset to the lender.
The foreclosure is the result of the lender attempting to recover the asset, which is the security, the collateral for the loan.
The security interest for the lender is collateral for the building or the home. The bank wants the security returned so the bank may resell it for dollars to stop their losses. Banks require collateral for real estate loans.
In the event, the bank, the lender, is not able to collect monthly installments. This is a default! This requires the lender to foreclose, take action, and demand the asset used as collateral be returned. The lender must take action to recover the collateral. Once the lender has control of the asset they will resell and pay off the debt.
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The Foreclosure Process
This is a sticky and most times ugly process. Banks hire attorneys to file and record lawsuits against the borrower, and this gets expensive.
Foreclosure is not a pleasant experience. If Mr. and Mrs. X cannot pay for the property, the lender will request the attorneys demand the property be returned via a lawsuit and foreclosure. If the demands are ignored by the borrower, the attorneys will continue the foreclosure process through the court system. This takes weeks, months, and it’s very expensive.
Real estate, unlike what you see on late-night television, does not always go up in value. The market is cyclic, up, down and up, down continuously. Values may drop below the actual mortgage. If that’s the case, the borrowers in many instances walk away from the property and abandon it. However, the foreclosure is usually the result of job loss or health issues.
There is more to foreclosure than losing a property. The challenge for the borrower losing the property is enormous. Their credit will be destroyed.
Laws change, so it’s important to do your homework. The bank only wants the asset returned, and the banker will be aggressive. They need the collateral so they can resell the building and stop their losses. Homeowners will lose the property to the bank in most instances.
A Foreclosure Can Result in a Deficiency Judgment
Once the bank controls the property, they will attempt to sell it. If the bank sells to another borrower for less than the loan amount, there will be a deficiency and the bank will continue the lawsuit to recover the deficiency. I’m sure you’re beginning to understand this is a mess with a lot of unhappy people, owners, borrowers, lenders, are all unhappy.
The original borrower and property owner has little to gain. They are about to lose the property and whatever they put into it. The challenge is overwhelming. The borrower with no equity should be in discussions to give the lender the property.
Conclusion
We hope you enjoyed Ted’s lesson, “Deed in Lieu of Foreclosure – Part 1
Today Ted focused on the foreclosure process and its consequences, the damage it can do to the homeowner’s credit rating and the possibility of a deficiency judgment. In Part 2, Ted will explain a deed in lieu of foreclosure and how it can benefit all parties involved.
If you’d like to learn how to reap huge rewards from alterative real estate investing, Ted Thomas provides full support and complete training with home study courses, Q&A webinars, live tutorials, workshops, web classes, and personal coaching with certified coaches.
Get started today by taking advantage of this Free Gift from Ted. Act now, it costs you nothing and will give you a big head start!
Ted Thomas is America’s Leading Authority on Tax Lien Certificates and Tax Deed Auctions, as well as a publisher and author of more than 30 books. His guidebooks on Real Estate have sold in four corners of the world. He has been teaching people just like you for over 30 years how to buy houses in good neighborhoods for pennies on the dollar. He teaches how to create wealth with minimum risk and easy-to-learn methods.
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