Friday, January 16, 2015

Top 10 Ways to Avoid Foreclosure - Deed in Lieu of Foreclosure - Massachusetts

Top 10 Ways to Avoid Foreclosure
Deed in Lieu – Bristol County - Taunton, Massachusetts     

Article 2 of 10

What is a Deed in Lieu of Foreclosure -
             A ‘Deed-in-Lieu’ in Massachusetts is an exchange of real-estate whereby the deed to your property is given (signed over) back to the bank instead of the bank foreclosing. In exchange for the deed, most people negotiate debt forgiveness along with the deal whereby they do not pay a deficiency. On some occasions the bank might also make an offer and release a home owner from the mortgage by accepting the deed and a lump some cash amount in addition to cover all or some of the deficiency (which is more common). The lender will consider this option if after a cost benefit analysis they will be better off economically than taking the path and costly expense of a lengthy foreclosure. Incidentally, if represented by counsel, banks are aware that foreclosure will cost more and take much longer to accomplish (hence I would always advise you to hire an attorney if you are looking for options and to negotiate a better settlement).

1.      Died in Lieu in Massachusetts –
Most people consider this option once they’ve missed multiple payments. To initiate this process you would need only to call your lender and bargain for it. Many people have their attorney initiate the process which is ideal to achieve the best bargain and also to review the release documents which can be very extensive and complicated.  In my experience banks are more prone to attempt this option or a short sale instead of foreclosing when they know you’re represented by an attorney. Without an attorney, you are really at the mercy of the bank/lender. In any event, the bank will do a cost benefit analysis that will go over how much you’ve put into the property, how much you bought it for, how much they can sell it for, and how far behind you are on your mortgage as well as whether foreclosure proceedings have actually been initiated.
A common client scenario is as follows; you have put $200k on a $300k mortgage, but now the house is only worth $250k if you sell it. You don’t have work and there is no way to pay off the last of the mortgage.  The bank is threatening foreclosure and if they auction the house you know the might sell for even less and in turn you will owe even more. You hire an attorney to approach the bank and negotiate a deed transfer or a ‘deed-in-lieu’. The bank has your $200k, if they sell the property they can get $250k and suffer a $50k total loss. The initial offer from the lender is in exchange for the deed and $50k cash lump sum, they will let you out of the mortgage. Your lawyer counter offers for the deed and $10k. This is a scenario in which the bank might take the deed to avoid a foreclosure proceeding because it could easily cost more than $40k and face the possibility of losing even more money. The bank would have to hire an attorney to close on the property ($15k), plus all the time they don’t have the house while you are occupying it without paying them ($10k), plus auction fees ($10k), closing etc ($10-$20k), plus they will have to wait months to get it back.  This presents a winning scenario for both parties because you are out from under a property that is no longer worth paying for and the bank avoids a losing proposition by you staying in the property and a downward spiral of profitability.
Even if you are not behind on your mortgage and paid up to date, banks might still consider this option. However, if you are not in default and you go to the lender on your own, it will be more difficult for them to justify a transfer like this because right now you’re paying on time and they are making money. This is not a suggestion for you to default intentionally although many people do so. A far better option is to have a foreclosure/bankruptcy attorney write them a letter. It will get their attention immediately and your offer will be taken seriously. The other reason (and perhaps more important) is if the bank agrees, you will want someone to read the transfer documents very carefully. I had a client once who failed to hire an attorney for a deed-in-lieu exchange where he thought it was an even wash and he was free and clear. He signed over the property to the bank then a year later the bank sold it for a huge loss.  Then they slapped the client with a huge deficiency law suit based on a contingency buried in the back of the exchange agreement which the client didn’t fully understand when he signed it.

This process can take up to or around 15-120 days depending on the lender and situation. It is a viable option and I discuss it with my clients frequently.
If you’re a Massachusetts local and in need of legal representation for foreclosure or bankruptcy law matters, I would be very pleased to help. Please visit my website for my contact information.

DISCLAIMER – If you live outside Massachusetts, please consult an attorney admitted to the bar association in which you live. This article only applies to People living in the Commonwealth of Massachusetts. There is no one perfect or guarantee solution. Each situation is different and you should consult an attorney before applying these principals.