What is a deed in lieu? Or deed in lieu of foreclosure? It is the process of signing the deed over to your mortgage lender to avoid the completion of a foreclosure on the property.
It is a favorite subject right now, but one with lots of misinformation under the umbrella of “what is a strategic default?”
It is popular in this mortgage meltdown to search for ways to get out from an underwater mortgage. A popular suggestion from other Florida attorneys is to not file bankruptcy, but work a strategic default ending in a short sale or deed in lieu of foreclosure.
But are they looking at the whole picture? It is easy to say let’s just worry about the mortgage right now, but what if you have mounting credit card debt that is not going away? Or if you are living in the home for free, how do you protect the money you will be saving when not paying the mortgage?
And most important… if you complete a deed in lieu of foreclosure, you have to move. Immediately.
Some foreclosure and debt defense firms are just churning fees. They will sell you on defending the foreclosure first. Then sell you on defending any lawsuits on credit cards as they come up. And it doesn’t do any good to defend just one credit card lawsuit if they are all going to eventually file – causing you to pay more attorney fees defending the additional suits.
Bankruptcy may allow you to wipe away all your obligations on the credit cards and any potential deficiency on the home – while still living in the home.
You get to live in the home even after the bankruptcy is filed. The lender still has to start and finish the foreclosure process (which we know takes quite a long time).
Back to the deed in lieu. The problem is that it is hardly ever properly handled, even by attorneys. What good is a deed in lieu if the bank can still sue you on the promissory note that you signed? Not good at all. But many people are negotiating a deed in lieu that does not eliminate the underlying debt.
Now, experts say, he and thousands of others in Florida who took the same deal from Fannie are at risk of being stalked by a so-called “zombie note:” debt that appears dead and gone but still can come back to life.
I am starting to see lenders get more aggressive. They aren’t filing foreclosures – probably because they don’t want the undervalued property back – and suing on the promissory note only.
Also, debt buyers will likely purchase these promissory notes for pennies on the dollar and be quite aggressive in trying to collect.
It is important that you consult with a consumer attorney who can address your debt issues from all angles… foreclosure defense, debt defense, and/or bankruptcy. And most importantly, in the proper order that benefits you the most.