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Heed the Deed?

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Posted On: 03/17/2010

QUESTION:

Is a “deed in lieu” of foreclosure better than a foreclosure?

ANSWER:

A “deed in lieu” of foreclosure is basically a situation where title is returned to the lender. It may be better than a foreclosure if your can negotiate such things as a move-out date, an end to any further liability for the loan and a better credit notation. Speak with a local attorney or legal clinic for specifics.

QUESTION:

We wanted to buy a foreclosure and offered $685,000. We waited for a response from the lender and meanwhile the property was sold to investors at auction for $457K! What’s going on here?

ANSWER:

I cannot say what happened in your specific situation. In the general case lenders and servicers have an obligation to sell foreclosed properties for the highest possible price. Why? Because a high sale price reduces the liabilities that may be owed by homeowners and minimizes the loss mortgage investors might face.

The question is whether homeowners and investors actually know what written offers have been received. William Frey with Greenwich Financial Services, a major mortgage investor, says “investors receive very little information regarding a foreclosed property. Generally the only thing that is detailed on a remittance report is the original face of the loan and the loss at the foreclosure and the ZIP code. This lets the banks leave many questions unanswered that should be answered. One would have to be a fool to think that the servicers were not exploiting this lack of transparency.”

One way to improve the foreclosure process would be to require that all written offers for foreclosed properties must be immediately disclosed to both homeowners and mortgage owners. This could be done with a standardized offer sheet sent out by e-mail.

As to your situation, why not bid at the lender’s auctions? It seems cheaper and quicker, so why deny the lender the opportunity to sell at a lower cost.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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