What do you do if you don't have enough money for a mortgage loan modification?
What if you can't sell you property because the equity is gone?
What if you can't get a Short Sale?
What if you can't get the money to keep your property?
What if you don't want to file for bankruptcy?
You have the option to give the property to the bank. This is normally called a deed in lieu of foreclosure. Essentially, a deed in lieu of foreclosure is when a bank agrees to take a property back to pay off the mortgage. This means there is no foreclosure. It simply becomes a written agreement between you and the bank.
This can make perfect sense for certain people. It helps you avoid public exposure of a foreclosure lawsuit. It releases you from all liability for the mortgage. In certain cases it does not affect your credit score any more than a foreclosure sale. However, the truth is, your credit score will always be negative once you start missing monthly payments, even with a foreclosure or not.
There are many people who just want the property monkey off their back. No more phone calls. No more letters. No strange people taking pictures of the house. No process server with legal papers. No public exposure of a foreclosure lawsuit. No more real estate and water taxes, insurance and repairs. No more tenants. NO MORE STRESS.
So it is reasonable to assume that if you want NO MORE STRESS, the bank should agree to take back the property and never contact you again. I mean, isn't that why the bank files for foreclosure. The reason why a bank starts foreclosure is to force the sale of the property so the bank can get the money it loaned you. We have heard time and time again that banks lose money during foreclosure. So a simple phone call to the bank should go something like this "Hello, big mortgage bank, I do not have the financial or the emotional ability to keep my property, so instead of going through a foreclosure, I will agree to give back the property. I will sign my deed over. In exchange just release me of all obligations with the mortgage." The answer from the bank should go like this "No problem, Mrs. Jones, simply sign this agreement and we'll eliminate your mortgage by taking the property back."
IF IT ONLY WAS THAT SIMPLE!!
The truth is some banks want you to fill out an application and provide a financial statement. Why? Who knows. Some banks want you to prove that the property was listed for sale before they agree to take the property. Why? Who Knows. Some banks say NO, We are not allowed to accept a Deed in Lieu of Foreclosure. Why? Who Knows.
Also, banks may have an incentive to let the foreclosure process continue. They may prefer that the owner takes care of the property. The bank does not want to hold the property as inventory aka real estate owned (REO). It can be expensive for a bank to maintain a property once they get it back.
Some banks are afraid to take properties because...There are various states that have home equity theft acts. These are laws that protect homeowners from signing their deed to an individual or company that promises to give the property back. In almost every instance the homeowner is a victim of a scam. Homeowners fall for these deceptive practice which causes them to lose their home and lose all of the equity in their property. These laws let a homeowner get their deed back within 2 years after signing, if they can prove that it violated the law. Some banks are afraid to take a deed in lieu because of these laws. However, why would a bank have any concerns, since the bank is taking the property deed in exchange for paying off the mortgage.
Banks may prefer to have the property go to auction just in case someone else buys the property. In this way, the bank gets paid back without the need to hold the property. So if a bank wants an auction, GIVE IT TO THEM. When the bank representative says "Look, we want to have a foreclosure auction to get other bidders". Tell them "Fine, I will agree to let you auction the property next week".
The truth is I have helped people contact banks and the banks foreclosing attorneys, all in an attempt to give a property back. The answer has been a consistent NO!
All this means is that a bank does not have your best interest at heart. It seems no matter how hard people try to move past their mortgage mess, banks make it difficult.
What do you do? Better make sure you get the most out of your property while you live there.
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