Foreclosure refers to a legal procedure in which a lender sells a borrower’s home in order to recover missed mortgage payments. However, there are certain circumstances in which a borrower may be permitted to choose a different alternative to foreclosure in order to pay off their mortgage debt.
Whether a borrower will be allowed to pursue one of these alternatives to foreclosure will primarily depend on the arrangement that a borrower has with their lender. Generally speaking, a lender will be willing to work with a borrower to renegotiate the terms of their mortgage loan agreement. Alternatively, they may attempt to come to another solution in which the buyer will be allowed to keep their home, and the lender will still get paid.
This is especially true given the impact that COVID-19 has had on the foreclosure process. As such, if you are experiencing issues with your mortgage payments or are in danger of having your house foreclosed upon by a lender, you should contact a local foreclosure attorney as soon as possible. An attorney can provide legal advice associated with various alternatives to foreclosure that may be available to you, and can be tailored to your specific needs.
As previously mentioned, there are a number of alternatives that borrowers can pursue in order to prevent foreclosure. Some of these alternatives permit the borrower to remain on the property, while others require the borrower to either sell the property or relinquish title to the lender. There are some cases in which a lender may offer their own alternatives to foreclosure. However, these will often vary in accordance with the lender’s policies, state laws, and the terms of the contract agreed to by the borrower and the lender.
What Is A Deed? Are There Different Types Of Deeds?
A deed is a signed legal document transferring ownership of an asset to a new owner, most commonly of property such as a house. A deed is intended to transfer a title, which is the legal ownership of a property or asset, from one person or company to another.
This document must be properly filed with the local government for its owner to be able to legally:
- Sell the property;
- Refinance the property; and/or
- Obtain a line of credit on the property.
Additionally, a deed is only considered to be a binding document in a court of law after it is filed in the public record by a local government official who maintains such documents. Signing a deed must be notarized, and some states also require witnesses. If a deed is not:
- Notarized; and
- Entered into the public record, it may be referred to as an imperfect deed. Although the document and the transfer of title are valid, the related paperwork may need to be on file with the register of deeds in order to avoid a delay in case of legal challenge.
There are several different types of deeds, each with varying requirements according to jurisdiction. The following is a general description of the most common types of deeds:
- Quit Claim Deed: A quit claim deed transfers any and all legal rights to the property from the grantor to the grantee. This specific type of deed makes no warranty regarding the extent of the grantor’s interest in the property, and provides the least amount of protection to the grantee;
- Grant Deed: A grant deed transfers either all or part of the legal rights to the property to the grantee from the grantor. A grant deed implies two specific warranties, the first of which is that the property has not been transferred to someone else. The second warranty would be that the property is free from any liens placed on the property by the grantor;
- General Warranty Deed: A general warranty deed transfers all of the legal rights to the property from the grantor, to the grantee, and explicitly warranties that the grantor has good title to the property;
- Special Warranty Deed: A special warranty deed transfers all of the legal rights from the grantor to the grantee; however, this type of deed warranties only what the deed specifically states is warranted. What this means is that if it is not on the deed, it cannot be warrantied;
- Fiduciary Deed: A fiduciary deed is used to transfer property when the grantor is a fiduciary. An example of this would be a trustee, guardian, conservator, or executor acting in their official capacity. Generally speaking, a fiduciary deed only warranties that the fiduciary is acting in their appointed capacity, and within their allotted authority; and
- Trust Deed: A trust deed is a written instrument which transfers property to a trustee, in order to secure an obligation. An example of this would be a promissory note, or a mortgage. This trustee has the legal power to sell the real property in case of default.
What Is A Deed In Lieu? When Can A Deed In Lieu Be Used?
A deed in lieu, or deed in lieu of foreclosure, is a specific type of deed that is also used as a foreclosure alternative. This type of deed essentially allows a person who is behind on their mortgage payments to avoid costly and time-consuming foreclosure proceedings.
The debtor transfers their deed to the lender or bank, instead of rendering payments through foreclosure hearings. Simply put, the deed in lieu is the instrument through which the debtor transfers their property to the lender in order to fulfill their debt. While the debtor forfeits title to their property, this could work to their advantage depending on their circumstances.
The laws governing deeds in lieu of foreclosure differ by locality. Generally speaking, a deed in lieu can only be used when:
- The debtor has exhausted all efforts to sell the home professionally, and at its fair-market value price;
- The debtor does not have any other mortgages in default; and
- The debtor truly does not have the ability to make up the monthly payments, or the overall debt.
As such, a deed in lieu is considered to be a last resort effort for those experiencing real estate debt. Additionally, it does still appear on the person’s credit report. Lenders sometimes hesitate to accept a deed-in-lieu, because the debtor can sometimes reclaim the property through the right of redemption when available.
What Are Some Legal Disputes Associated With A Deed In Lieu?
In order to be valid, a deed in lieu must meet all of the basic requirements for any deed. Such information includes:
- The names and contact information of all parties;
- A clear and detailed description which identifies the property being transferred;
- A statement indicating the debtor’s intent to transfer their property to the lender; and
- Signatures of all parties involved in the transaction.
If any statutory requirements for a deed in lieu are not met, a dispute over the validity of the entire agreement could result. An example of this would be how if the property cannot be easily identified from the deed language alone, a court may hold the deed to be invalid. This is similar to a contract dispute in which the contract formalities have not been met.
Other examples of disputes associated with deeds in lieu can include:
- The use of force or coercion, as neither party can use force or coercion to make the other party sign the agreement;
- Lack of fairness, as the transfer must be equivalent to the fair market value of the property being forfeited; and/or
- Legality, in that the deed provisions cannot violate any state laws or statutes in any way.
If the disputing parties cannot reach an agreement regarding a deed in lieu, the parties may need to proceed with foreclosure.
Do I Need An Attorney For Assistance With Deed In Lieu Laws?
If you are considering a deed in lieu arrangement, you should consult with an experienced and local foreclosure lawyer. An attorney can inform you of your state’s laws regarding the matter, and what your legal options are according to those laws. Additionally, an attorney will also be able to represent you in court, as needed.