Bank of America sent out nearly 100,000 solicitations to distressed homeowners to offer them a chance at a deed-in-lieu transaction. “Deed-in-lieu” refers to returning the deed to your home to a lender in order to avoid the foreclosure process. You get to walk away from your home, and the lender declares the debt resolved because you returned the home, your collateral. Many lenders have said that they will offer a variety of incentives for this type of transaction because it saves them a great deal of resorces in processing costs even though they may take a hit when they try to resell the home in today’s difficult market.
Short sale investors see this new trend with concern, especially since some lenders have said that they find deed-in-lieu transactions preferable to short sale transactions since they don’t take as long. Also, homeowners who are going to lose their homes anyway may find this to be a more acceptable alternative since it is being portrayed as a route to 100% resolving the debt rather than worrying about being followed up with later for the remainder just when you have gotten back on your feet.
As a short sale investor, you should not stress about this. There are several homes that will still go through the short sale process, and not all circumstances are going to qualify for a deed-in-lieu transaction. You can point out to homeowners who may be backing out of a short sale that unless the wording in their deed-in-lieu agreement specifies that the debt is considered entirely resolved by the return of the property, as this may not be the case.
Furthermore, while both deed-in-lieu and a short sale do go on your credit history and negatively impact your credit score, a deed-in-lieu remains on your history for a full 7 years, and you may have to request that it be removed. According to new legislation, short sales may be removed as soon as 3 years in some cases.
In fact, some homeowners may opt for a deed-in-lieu transaction in place of a short sale transaction with you. Nevertheless, the current deed-in-lieu “push” could actually be good, since it may put a notch in homes that lenders were unwilling to short sell anyway. Just be willing to answer questions about this sort of transaction, then keep doing your short sales and helping individuals in trouble resolve their housing scenarios.
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