For homeowners troubled by mortgage problems, there is still a way to stop foreclosure – through the process known as deed-in-lieu of foreclosure.
When a borrower fails to pay their mortgage, they let the lender take over the property. The lender, then, sells the property at a price equal to or part of the total amount that has to be repaid by the borrower to the lender. In effect, the property is spared from foreclosure.
How is this done? First, certain legal documents have to be signed by either or both of the parties. One of which is the Agreement in Lieu of Foreclosure. In this document, both the borrower and the lender have to affix their signature. This contains the terms and conditions involved in the transaction.
Another important document is the deed. It may be a warranty deed, quit claim deed, or grant deed. This document, which is signed by the borrower, legally transfers ownership of the property to the lender.
The lender then declares the debt as paid and marks the note of the borrower. After which, the lender furnishes the borrower with two forms. The first one indicates that the debt is officially called off. The second form, the waiver of the right to a deficiency judgment, denies the lender the right to ask for an additional amount in case the property sales proceeds do not cover the debt amount.
Finally, the lender submits the marked note of the borrower to an escrow company. The escrow forwards this note to the borrower after recording the deed of transfer of ownership.
Tax payment in this process varies from state to state. In most part of the country, the Mortgage Debt Forgiveness Tax Relief Act is being implemented until the end of the year. However, in particular states like California, the policy has not been implemented yet. Thus, a deed tax based on the amount of unpaid debt has to be paid the borrower.
As the process is completed, the borrower is freed from mortgage debts and foreclosure troubles.
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