Many homeowners today are facing the same problem. They know that inevitably they will default on their mortgage note as the house is simply too much to afford or the value has decreased dramatically, but they wish to avoid the credit damage and potential personal liability of the inevitable foreclosure if possible. The answer may be a deed in lieu of foreclosure...and you probably have many questions such as: What is a deed in lieu of foreclosure? How do I do a Deed in Lieu of Foreclosure? What is the deed in lieu of foreclosure timeframe? These are all good questions that we will try to answer.

DEED IN LIEU OF FORECLOSURE- CALIFORNIA LAW

As an initial matter, McFarlin & Geurts is located in and practices primarily in California. We do service clients in other states (and have attorneys licensed in other states), but the information contained herein, and on our website generally applies to California borrowers. No matter what state you, or your property is located in however, we would be happy to speak to you about deed in lieu of foreclosure.

WHAT IS A DEED IN LIEU OF FORECLOSURE?
In a nutshell, a deed in lieu of foreclosure is when you (typically through your attorney representative) communicate to the lender that it need not bother with the formalities and requirements of the foreclosure process because you are willing to simply "convey" or turn over title to the property voluntarily. This is called a "surrender of title" and has commonly become known in the lending industry as a deed in lieu of foreclosure. In a deed in lieu of foreclosure scenario, you are simply signing the property over to the lender. Many lenders will accept the surrender, while others may refuse to do so, but the matter is often one that can be negotiated, especially if it communicated to the lender that they may have taken some unlawful action in originating or servicing the loan (that's where your attorney representative comes in).

As with all other important financial matters, the one thing that you must not do is completely ignore the problem, hoping that somehow it will miraculously "take care of itself". Ignoring a pending or potential foreclosure can make matters much worse and further complicate the situation. For the most part, foreclosure problems can be solved through a deed in lieu of foreclosure, one way or another, as long as they are not ignored.

A voluntary surrender of title to property as a deed in lieu of foreclosure is a responsible manner in which to relinquish the property rather than forcing the lender or mortgage company to go through the expensive and time consuming formal foreclosure process. A deed in lieu of foreclosure is essentially your offer to simply deed the property back to the lender. It is somewhat like moving out of an apartment upon realizing you are unable to pay the rent voluntarily, rather than forcing the landlord to evict you, or returning a car to the dealership upon realizing you cannot afford the payment. Not an ideal scenario or one you would choose to find yourself in, but an opportunity nonetheless to take some measure of responsibility and "mitigate" the lenders damages in regard to the property. It may go without saying, that a deed in lieu of foreclosure should only be an option that is considered when making scheduled mortgage payments is not feasible.

To arrange a deed in lieu of foreclosure, the borrower should first consult with an attorney who has experience handling these types of matters. McFarlin & Geurts has represented hundreds of borrowers in deed in lieu of foreclosure negotiations, and we are recognized by lenders as being experts in our field. We even receive client referrals from employees of the very lenders we negotiate with when their friends and family need help, they recognize our quality and expertise. Of course, McFarlin & Geurts is always happy to initially consult with you at no charge.

WHAT IS A DEED IN LIEU OF FORECLOSURE, AND WHAT ARE THE BENEFITS OF A DEED IN LIEU OF FORECLOSURE?
The deed in lieu of foreclosure presents several advantages to both the borrower and the lender that you may not be aware of. The principal advantage to the borrower of a deed in lieu of foreclosure is that it typically immediately releases him/her from the personal indebtedness and liability associated with the defaulted loan. The borrower also avoids the public notoriety of a foreclosure auction. Another benefit to the borrower (although it has been debated) is that a deed in lieu of foreclosure damages their credit less than an actual foreclosure does. Advantages to a lender include a reduction in the time and cost associated with getting the property back, and additional advantages if the borrower subsequently files for bankruptcy.

A true deed in lieu of foreclosure is a situation in which the indebtedness is secured by the real estate being voluntarily relinquished. Both sides enter into the transaction voluntarily and in good faith. The deed in lieu of foreclosure agreement must reference and contain contract language releasing the borrower from any further personal liability, otherwise it is generally not advantageous for the borrower to sign. Sometimes, the lender will not proceed with a deed in lieu of foreclosure if the outstanding indebtedness of the borrower exceeds the current fair market value of the property, but this has become less of an obstacle as property values have declined recently. Usually, lenders will agree since they will end up with exactly what they would have gotten at a foreclosure sale, without going to the expense of actually conducing the foreclosure sale process.

Lenders will not act upon a deed in lieu of foreclosure unless they receive a formal written offer of such a conveyance from the borrower that specifically states that the offer to enter into negotiations is being made voluntarily, this is typically done through a deed in lieu of foreclosure attorney. So long as the arrangement is voluntary, and the lender did not exert undue pressure on the borrower, the deed in lieu of foreclosure process is lawful. However, neither the borrower nor the lender is obliged to proceed with the deed in lieu of foreclosure until a all contract terms are negotiated and final resolution is reached.

As described above, the deed in lieu of foreclosure process allows you to transfer your property voluntarily to your lender and your debt or deficiency is often forgiven. Take notice that this will not save your home as you are returning it to the bank, but it very well may help you get another mortgage loan in the future. Of course, additionally, the deed in lieu of foreclosure process serves to provide a basis for avoiding the lengthy and somewhat adversarial foreclosure process. Although a deed in lieu of foreclosure is damaging to your credit rating, it is less harmful than a formal foreclosure generally.

In order to be considered for a deed in lieu of foreclosure, your property typically has to be listed for sale as a "short sale", if you choose to work with McFarlin & Geurts, we can have this taken care of for you through our network of professionals who we trust with our clients listings (the wrong Realtor can ruin an otherwise workable deed in lieu of foreclosure transaction by "over-communicating" with the lender). Additionally, lenders typically also have a requirement that any junior liens or judgment or other voluntary liens be resolved prior to accepting a deed in lieu of foreclosure. Finally, the lender will almost certainly insist on a full inspection of the property prior to any formal agreement. Your deed in lieu of foreclosure attorney can coordinate these details on your behalf.

HOW DO I DO A DEED IN LIEU OF FORECLOSURE?
Generally, if you're asking "how do I do a deed in lieu of foreclosure?" you may be thinking of attempting to work your way through the process yourself, without counsel. A deed in lieu of foreclosure is a complex and highly technical legal process that requires a high level of professional expertise. It is possible for a borrower to complete a deed in lieu of foreclosure without counsel, but the success rate is much lower, and it could have a negative net effect, even if completed without an attorney. You should also be aware that lenders frequently attempt to bury undesirable and harmful terms and conditions in the fine print of deed in lieu of foreclosure agreements. The incidence is much lower when you are represented by counsel, however, we still see lenders attempting these subversive tactics. McFarlin & Geurts attorneys always carefully review any deed in lieu of foreclosure contract received from a lender to ensure it is in the borrowers best interest. The best answer to your question: how do I do a deed in lieu of foreclosure, may be simply to contact a legal representative and formulate a plan.

WHY DO I NEED AN ATTORNEY TO DO A DEED IN LIEU OF FORECLOSURE?
We do not wish to insult you, but hubris is a killer here...If you are a reasonably sophisticated individual, you can probably get yourself fairly deep into the deed in lieu of foreclosure process yourself without an attorney. However, unless you truly make a serious time and resource commitment to understanding the legal process involved, researching lender guidelines, investigating property transfer law, and comprehensively educating yourself in contract law, you will be at a tremendous disadvantage in the negotiations with the lender and will most likely be taken advantage of. Even if you think you know, you probably don't know how to complete a deed in lieu of foreclosure in a manner in which you are protected. Keep in mind, your lender does not want you to have an attorney, they will make it seem "easy as pie" to complete this complex transaction and give you a false sense of security right up until the point where they sue you for the deficiency you accidently agreed to by implications in contract language you signed off on during the deed in lieu of foreclosure process. Even our attorney clients do not represent themselves, this is a specialized area of law, and you need representation and protection. Think of it as an insurance policy, proper preventative measures now will separate you from everyone else who, with a sense of excessive pride, represents themselves. Although there is no way for us to confirm, we believe lenders actually have two sets of forms, one set for borrowers representing themselves who will not understand what they are signing, and one set for borrowers with attorneys who will carefully dissect every word of the contract language contained in the deed in lieu of foreclosure contract.

In order to be considered for a deed in lieu of foreclosure, your property typically has to be listed for sale as a "short sale", if you choose to work with McFarlin & Geurts, we can have this taken care of for you through our network of professionals who we trust with our clients listings (the wrong Realtor can ruin an otherwise workable deed in lieu of foreclosure transaction by "over-communicating" with the lender). Additionally, lenders typically also have a requirement that any junior liens or judgment or other voluntary liens be resolved prior to accepting a deed in lieu of foreclosure. Finally, the lender will almost certainly insist on a full inspection of the property prior to any formal agreement. Your deed in lieu of foreclosure attorney can coordinate these details on your behalf.

WHAT IS THE DIFFERENCE BETWEEN A FORECLOSURE AND A DEED IN LIEU OF FORECLOSURE?
A (typical) foreclosure refers either to a trustee's sale foreclosure (not a judicial proceeding) or to a judicial foreclosure (a judicial proceeding). California is a "non-judicial" foreclosure state, so the Court need not be involved in foreclosure proceedings. A deed in lieu of foreclosure refers to a method of avoiding that formal foreclosure process and entering into an agreement with the lender to accept title to the property voluntarily. This usually saves everyone time and money in the long run. A deed in lieu of foreclosure is simply a conveyance of the property to the lender by grant deed or quitclaim deed; and, in exchange, the lender cancels the promissory note secured by the real property (including any potential personal deficiency). In this way the lender can avoid the foreclosure process to regain title to the property fast and efficiently, and all they are walking away from is a speculative (at best) claim against a likely insolvent borrower that will never be collectable anyway.

CAN'T I JUST "QUITCLAIM" THE PROPERTY TO THE LENDER AND RECORD THE TRANSFER?
A borrower cannot simply transfer title to the lender without the lender's formal permission, such as just recording a quitclaim deed. Because some lenders have refused to negotiate and accept the deed in lieu of foreclosure, creative homeowners have simply quitclaimed the property to the lender anyway, and recorded the instrument without the lender's permission (or prior knowledge). Good idea, but generally not a viable option.

In 1993, the California legislature passed a statute to protect lenders from involuntary (and invalid) transfers of real property to the lender in such a manner. The lender would simply record a "notice of nonacceptance of a recorded deed" in the county where the real property is located. Redelivering a grant of the real property back to the original homeowner (e.g., borrower) does not legally retransfer the title. (Cal. Civ. Code 1058.5.)

WHY WOULD A LENDER EVER REFUSE A DEED IN LIEU OF FORECLOSURE?
Lenders often refuse a deed in lieu of foreclosure due to the better quality and more certain title they receive at a trustee's sale, called the "Trustee's Deed Upon Sale". A trustee's deed upon sale serves to eliminate and wipe out any junior liens such as Home Equity Lines of Credit, 2nd Mortgages, judgment liens, etc. If those issues exist, it may be more challenging to convince a lender to accept a deed in lieu of foreclosure, nothing is impossible though.

WHAT IS THE DEED IN LIEU OF FORECLOSURE TIMEFRAME?
It is difficult to answer "what is the deed in lieu of foreclosure timeframe" question because it can vary so widely between lenders. Most lenders require the property be listed for sale prior to considering a deed in lieu of foreclosure. This is a service provided at not additional charge by McFarlin & Geurts. As a generally matter, a deed in lieu of foreclosure is rarely completed in less than 90 days, and can take up to 8 months, however, during the process, the borrower is typically living in the property rent free. So, what is the deed in lieu of foreclosure timeframe? Frankly, we can offer no reliable predictions.

There is no guarantee that your bank will accept a deed in lieu of foreclosure. You, or your attorney representative, have to communicate with them continuously and see if deed in lieu of foreclosure is a viable option. A critical part of the process is having the property listed with a qualified short sale agent, or through your deed in lieu of foreclosure attorney's office. McFarlin & Geurts would be happy to assist you through the deed in lieu of foreclosure process, and answer those pressing questions of yours such as: how do I do a deed in lieu of foreclosure?, deed in lieu of foreclosure timeframe?, and what is a deed in lieu of foreclosure? during a free initial consultation.

DO I HAVE TO HAVE THE PROPERTY LISTED FOR SHORT SALE TO DO A DEED IN LIEU OF FORECLOSURE?
Generally, yes. Lenders do require that the property is listed for sale, even though it ultimately is not going to sell in today's market. McFarlin & Geurts has it's own, in house, real estate brokerage, Clear Point Real Estate Services that can list the property for you or take over the listing process and identify for you Realtors in your area who understand the deed in lieu of foreclosure process and will not compromise our objectives. This is completely different process than a traditional real estate sale.

CAN I JUST USE MY OWN REALTOR TO LIST THE PROPERTY?
Yes, you can use your own Realtor, and if you have a strong preference to use a particular Realtor, we will work with them, however, in the deed in lieu of foreclosure process the objectives of an independent Realtor listing your property as a short sale are not necessarily the same as your objectives. The Realtor will be most interested in "closing" the short sale, not finding the best solution for you. McFarlin & Geurts is here strictly to represent your best interests, and frankly, we don't care what happens with the property or who gets a commission, our job is to execute the plan that best fits your objectives, which is sometimes, not completing the short sale.

WILL I GET A 1099 FROM THE LENDER FOR "DISCHARGE OF INDEBTEDNESS" AFTER A DEED IN LIEU OF FORECLOSURE?
This is negotiable, but frequently yes, however, that doesn't necessarily mean it is appropriate to 1099 you or that you will have to pay tax. The Mortgage Cancellation Relief Act of 2007 largely eliminated this tax burden (despite the lender's 1099), but it is a delicate situation that must be dealt with properly to qualify under the act and avoid tax liability.

DO I HAVE TO BE LATE ON MY MORTGAGE PAYMENTS TO SUBMIT A DEED IN LIEU OF FORECLOSURE REQUEST?
Generally yes, but we cannot can not advise you to stop making payments if you have the ability to do so. It is sometimes possible to complete a deed in lieu of foreclosure or short sale when the borrower is current, but it is difficult and may take much longer.

WILL A DEED IN LIEU OF FORECLOSURE AFFECT MY OTHER DEBTS, LIKE CREDIT CARDS?
Surprisingly, yes, it may. Credit card contracts now frequently contain "universal default" provisions which give the creditor the option of raising your interest rate to the "default" interest rate if you are late or default on any of your debts, not just that individual credit card. So take warning, if you start missing mortgage payments, your credit card interest rates may go up, and your account limits may go down under universal default provisions during the deed in lieu of foreclosure process. The good news is McFarlin & Geurts can help you with debt elimination to address any credit card debt issues you may have.

In order to be considered for a deed in lieu of foreclosure, your property typically has to be listed for sale as a "short sale", if you choose to work with McFarlin & Geurts, we can have this taken care of for you through our network of professionals who we trust with our clients listings (the wrong Realtor can ruin an otherwise workable deed in lieu of foreclosure transaction by "over-communicating" with the lender). Additionally, lenders typically also have a requirement that any junior liens or judgment or other voluntary liens be resolved prior to accepting a deed in lieu of foreclosure. Finally, the lender will almost certainly insist on a full inspection of the property prior to any formal agreement. Your deed in lieu of foreclosure attorney can coordinate these details on your behalf.

DO I NEED TO KEEP PAYING MY PROPERTY TAXES, HOA DUES AND INSURANCE DURING THE DEED IN LIEU OF FORECLOSURE PROCESS?
Again, McFarlin & Geurts can not advise you to not pay debts you have the ability to pay, however, if you are unable to pay property taxes and home owners association (HOA) dues, those amounts would most likely simply be paid by the lender or purchaser of the property. In order to clear title and convey clear title to the property at any point, the lender (or someone else) would have to bring current any past due property taxes and HOA dues. Property insurance should be viewed slightly differently because if something happens at the property, personal injury, etc., you (as the current titleholder) are still personally responsible, even though you are in the process of turning the property back over to the lender.

IF I GIVE THE LENDER ALL MY FINANCIALS, THEY'LL SEE I HAVE INCOME AND ASSETS AND WOULDN'T THAT CAUSE THEM TO DECLINE THE DEED IN LIEU OF FORECLOSURE AND COME AFTER ME ?
Generally a deed in lieu of foreclosure or short sale is designed for a borrower who simply can not afford their property. It is not designed for a borrower who simply does not wish to keep their property despite an ability to pay for it. However, we have not seen any significant correlation between the assets and income a borrower has and the lenders willingness to consider a deed in lieu of foreclosure or short sale request. Simply, the lender is making the decision between taking the property at a foreclosure sale or agreeing to take it back voluntarily. Of course if they were offered the option of a borrower continuing to make payments and comply with all terms and conditions of the mortgage contract, that would be their choice. The bottom line is, no situation is hopeless, and McFarlin & Geurts can almost always help no matter what your circumstances.

WILL THE LENDER CONTACT MY JOB OR MY FRIENDS OR RELATIVES?
No, they have no reason to contact those people, unless you've listed them as contacts on your mortgage application.

IS A DEED IN LIEU OF FORECLOSURE MADE PUBLIC?
No, it's a private voluntary arrangement between a borrower and a lender. The property simply gets transferred from one party to another without court action, etc.

CAN I GO BUY ANOTHER HOUSE WHILE MY CREDIT IS STILL GOOD, AND THEN STOP MAKING PAYMENTS AND SUBMIT A DEED IN LIEU OF FORECLOSURE ON MY CURRENT HOUSE?
McFarlin & Geurts does not recommend this course of action. From the perspective of the lender considering the deed in lieu of foreclosure that is probably not a problem, however, the loan application and transaction on the new house will be questionable at best, and potentially fraudulent. When you apply for the new loan, you'll be making certain representations, including your intentions to keep payments current and maintain credit, etc. If those representations ultimately turn out to be false, you may be opening yourself up for allegations of fraud from the new lender.

SINCE I HAVE TO LIST THE PROPERTY FOR SALE, WILL ALL MY FRIENDS AND NEIGHBORS KNOW I'M DOING A DEED IN LIEU OF FORECLOSURE OR SHORT SALE AND FACING FORECLOSURE?
No, there will be no giant red "X" on your house or sign posted regarding foreclosure during the deed in lieu of foreclosure process. Our in-house brokerage, Clear Point Real Estate Services, typically puts a common looking real estate sign in front of your house letting potential purchasers know it's for sale, and listed by a reputable brokerage. Our group represents buyers, sellers and investors, so no one will know what's going on unless you tell them. Additionally, if you choose, there can no sign in front of your house at all, but this may slow down the process somewhat.