Foreclosure in Dana Point>Question Details

John Adler, Home Seller in San Clemente, CA

What happens to a lien holder in second postion when the Owner returns the Keys to the First position "Deed in Lieu"? I would like both

Asked by John Adler, San Clemente, CA Sat Jan 1, 2011

Realtor opinions and mortagage broker opinions, please!
Is the First position required to sell the property in an attempt to assist the second if possible?
I realize in CA the second, depending on the circumstances, may or may be unable to go after the borrower!
If the second was informed that the borrower may return the keys, deed in lieu to the first, what are thier options to retrieve some of their investment? What would you do if you were in the Second position?

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Answers

19
Dave Gubler | Broker’s answer
Which lien (1st or 2nd) has the trustee sale scheduled? This is vitallly important. If it is the 1st then you have quite a bit of leverage working for you against the second in terms of obtaining their deed-in-lieu cooperation. As you know they will be wiped out if the 1st is the one foreclosing. If it is the 2nd lien foreclosing your options are diminished. Get an offer quick (short sale)!

The scenario you propose is more like a short sale than a foreclosure action in that both liens would have to agree to the terms of the deed-in-lieu in order for it to be consumated... as in a short sale. Getting two or more lenders to agree can as we all know from short sale transactions be tricky business with quite a bit of back and forth. Not impossible of course but difficult nevertheless.
2 votes Thank Flag Link Thu Apr 14, 2011
John...it is quite possible that the 1st will not be willing to complete a Deed in Lieu, althought I recently saw F&M accept a DIL and take on both the tenants in the property and the 2nd. A lot depends on who the investor is on both the 1st and 2nd and what type of loans you currently have (purchase money, refi, HELOC, etc). Sounds like you are currently weighing your foreclosure options, it is very important that you speak with a financial advisor who specializes in this area and who can help you navigate through your options from both a deficiency and tax perspective. Let me know if you need a referral.
1 vote Thank Flag Link Sat Jan 1, 2011
In a Deed in Lieu, the person or entity who takes title from the grantor is responsible for all liens attached to the property, or in other words takes title subject-to all pre-exisiting liens.

The 1st position has no requirement to assist the 2nd lien holder.

If I was the 2nd lien holder I would foreclose on the property if there was equity. If the property came back to you the lender on the 2nd loan you would take title "subject to" the 1st loan & any liens senior to yours.

If there is not any equity then I might approach the 1st TD holder & try to negotiate a solution (loan mod or short sale)
1 vote Thank Flag Link Sat Jan 1, 2011
John:
You're getting answers from all over the country, some of whom may not be conversant with Califoria law.
This is not something to "crowd-source".
You need to get trusted counsel from a single source (at least a local Realtor trained in short sales, and preferably an attorney, too) that you have "vetted" and trust.
You will likely find that the 1st TD holder may not accept a Deed-in-Lieu-of-FORECLOSURE (DIL) without an OK from the 2nd.
Additionally (and you may want to verify this with a credit repair outfit) the effect on your credit score is the same for a foreclosure and a DIL... so there is no benefit to doing either a foreclosure OR a DIL!
Conversely, the "hit" on your credit is significantly smaller with a short sale, so that is what you probably will want when you compare all the pro's and cons.
When you next apply for a mortgage, there will be a question as to whether you have had a foreclosure OR a DIL for some past amount of time... they are essentially the same to the inquiring lender.
So, the question is moot... you probably don't want to do a DIL OR a foreclosure, anyway!
Difficult to know without knowing all the facts, but I imagine that this is what you will find.
One thing IS clear, you need a trusted source of information if this is more than just a hypothetical question for you (i.e. if you have a stake in the outcome).
Terry
0 votes Thank Flag Link Thu Jan 26, 2012
I don't think you can do a deed in lieu if you have two different lenders. You can double-check this with an attorney. The first would only accept the keys if you are giving them a clear title. If you are upside down on your mortgage, I would suggest you do a short sale. We will negotiate with both banks for you and try to get you off the hook for the deficiency judgement. This will keep foreclosure off your credit and likely reduce your debt.

Please call us directly to discuss your specific situation. Our services are FREE to homeowners. We look forward to hearing from you.

Eli Givoni, Director
Short Sale Department, LLC
561-361-1909
info@shortsaledept.com
http://www.shortsaledepartment.com
Serving all 50 states
0 votes Thank Flag Link Sun Jan 9, 2011
In a case of deed-in-lieu-of (short sale is the same) the second mortgage holder needs to be involved, their lien only gets wiped out in a foreclosure. Some second position lien holders get this and will work with you and the first lien holder to make the deal work, other will not. What you should do first and foremost is have an accountant do a certified personal financial statement showing you have nothing and that it would be a waste of time and money for the second lien holder pursue any future compensation.

Good Luck
Bob Patrick
Buy a home after foreclosure, short sale or deed-in-lieu-of expert
Movin-On LLC
Helping families/people that have lost their home get back into a new one in as little as 6 months
0 votes Thank Flag Link Tue Jan 4, 2011
Hi John,

Please don't take a chance with this.....speak with an attorney if you are considering a Deed in Lieu of Foreclosure. Realtors® have been handling short sales for some time now, and have some knowledge of that...and getting the release of all liens/liability, but the Deed in Lieu is now becoming a trend among lenders and I have some concerns.

Unless the second releases the lien and signs off...you might find yourself with some responsibility. Same is true with past due HOA and/or property taxes. At least with a short sale, you can see that all this has been resolved.

I'm not saying don't do the Deed in Lieu, but don't do it alone. If you feel it's a good option for you and your family, see a real estate attorney, and make sure you are protected.

If you'd like to speak about the procedures/steps for a short sale...I'd love to speak with you about that, or give you a referral for a real estate attorney who can protect you.

Karen
0 votes Thank Flag Link Mon Jan 3, 2011
It will be tuff because the 1st would have to assume total responsiblity for the 2nd and in most cases they wont. You should consider doing a short sale walking away should be a last option. Interview a couple of Realtors in your area who are certified and expirenced in doing short sale ask them how many they have done and what their success rate is. Althouth their is no guarantee when it comes to short sales having someone with good experience will help navigate the road bumps and in some cases get you to settle them as paid in full.

Good Luck :)
0 votes Thank Flag Link Sun Jan 2, 2011
I doubt the lender in the first position will accept a deed in lieu knowing there's a second deed of trust that the borrower has not satisfied.

If I'm in the second position, I would want to know what my rights are against the first lender who has become the new owner with the deed in lieu. This is not a trustee's sale. Had this been a trustee's sale by the first lender, my interest would have been wiped out by the foreclosure and I may come after the borrower for personal liability. But this is a deed in lieu, not a trustee's sale. I believe the first lender may take title to the property subject to my interest. If the first lender/new owner does not pay me, I can foreclose on the property and get the title to the property - which I may or may not be interested in, since the property is probably "upside down". I would want to know how much the property is "underwater".

If the property is not too much "underwater", I don't mind the first lender taking title to the property. I will make my demand on the first as soon as they take title. If they don't pay, I will foreclose, take title, and flip it quickly to recoup some of my investment.

But if it is way "underwater", I'll chalk it up as a loss and move on. It would be stupid of me to try to foreclose on it.
0 votes Thank Flag Link Sun Jan 2, 2011
A short sale is your best option and a forclosure is just more then you want. The seconds are always the stick in the eye and some worse then others. A lot of seconds are being bought up for pennies and being handled by amatures. Stick with the short sale they are a pain and a good realtor can buy time. Stay in your property and stop making your payments. Take control.
0 votes Thank Flag Link Sun Jan 2, 2011
A short sale with 3 weeks to go is an option...if you list the property immediately for a price that will get an offer as soon as possiible. Your paper work should be in order and both be submitted to the bank...the bank can stop the auction. Please call and you can make an informed decision if a short sale would work for you.
Web Reference: http://www.raquelunger.com
0 votes Thank Flag Link Sat Jan 1, 2011
I appreciate the answers!
I do realize that in the state of CA, in my partricular case, the first and second cannot come after me for the deficiency and that there will not be an IRS issue later.
I really would like to just turn the Keys in to the first, if they will accept them.
As far as the second goes, they have been extremely rude an not helpful!
The short sale would have been an option a few months ago, but now it is too late, for the auction is scheduled in three weeks!
Keith & Patrick thanks for your answer.
I did not realize that a deed in lieu is impossible if there is a second or additional lien other than the first.
You answered my question!
0 votes Thank Flag Link Sat Jan 1, 2011
Hi there John , Hope you got some good advice here. You shoukd definitlry talk to a tax and financial advisor to review the financials . A short sale appeard to one viable option.
If you need some advice on how to go about doing this please let me know

Kind Regards
Michael Barron
Realtor
First Team Real Estate
0 votes Thank Flag Link Sat Jan 1, 2011
Hi there John , Hope you got some good advice here. You shoukd definitlry talk to a tax and financial advisor to review the financials . A short sale appeard to one viable option.
If you need some advice on how to go about doing this please let me know

Kind Regards
Michael Barron
Realtor
First Team Real Estate
0 votes Thank Flag Link Sat Jan 1, 2011
First of all there is no deed in lieu if there is a second mortgage. The home needs to be free and clear of all other liens besides the first.

The only way I know to address the second is through a shorts sale, have a attorney or representive or you negotiate the second or file bankruptcy. All these avenues you should discuss with a local expert.

Keith Manson
Certifed Distressed Property Expert
Metro Milwaukee

http://www.milwaukeebailout.com
http://www.findmilwaukeerealestate.com
0 votes Thank Flag Link Sat Jan 1, 2011
HALT!! With all this Deed In Lieu talk. Deed in Lieu is the SAME as a foreclosure on your credit record. The 2nd lien holder CAN pursue you in the future for a deficiency judgment & so could the 1st lien holder!

You NEED to do a SHORT SALE!

In a short sale we can negotiate for BOTH lien holders to release their liens as PAID IN FULL so they don't come after you in the future for a deficiency judgment.

Depending on how you own the home & when you got your 1st & 2nd liens, by letting the house go back to the lender as a Deed in Lieu, you could be opening yourself up to paying MORE in Income Tax to the IRS for the Negative Debt, than if you sell the house as a Short Sale.

After a Deed in Lieu or a straight foreclosure you will NOT be able to purchase another property with a Fannie Mae backed loan for SEVEN years, this is a new rule that occurred on Dec. 13th, this is up from 3-4yrs.

After a short sale you CAN purchase again in 1-3yrs.

Please call or email me directly and I can give you some more guidance based on your own situation & your own lien positions. Between my partner & I we have negotiated over 500 short sales.

I know you've been trying for a loan modification for a long time now, now you see banks are Not really interested in giving out viable loan mods that make sense for the homeowner for the long term. If they were interested in doing this, the short sale & foreclosure market would have dried up within 1 yr of HAMP rolling out.

EmilyKnell1@yahoo.com
562-430-3053 cell
Realtor Since 1996
0 votes Thank Flag Link Sat Jan 1, 2011
John,

If this is your situation the go to http://www.shortsaleapp.com for all the information you need. If this is your situation a deed in lieu is considered the same as a foreclosure on your credit report. Why do that? You best best is to try a short sale of your home. Call me for some additional information or visit the website and ask for the Free book.

Joe Homs
Realty Partners
949-625-4533
Joe@joehoms.com
Web Reference: http://Www.joehoms.com
0 votes Thank Flag Link Sat Jan 1, 2011
The first lien holder may not accept the deed in lieu if there is a second lien holder. In a DIL with a second, it becomes the first lien holders responsibility to sell the property and pay off the junior lien because most likely no one will buy it with a second lien on it and the first lien holder would not have clear title.

If the first lien holder did accept a DIL, then they would probably include a non merger clause. This is a claude that prevents a junior lien holder from taking any legal action against the first lien holder. The first lien holder may still have to pay down some fo the second lien holder unless they come to some kind of agreement. If the first lien holder will not recover the entire lien, then they most likely will not accect the DIL.
0 votes Thank Flag Link Sat Jan 1, 2011
John,

Some of the possibilities include what you mentioned: 2nd lien holder coming after the borrower or the 2nd lien holder could negotiate to take the asset from the 1st usually for a discount and then they could sell it as a REO to recoup losses.

But the 1st lien holder is in no way required to sell the property to help relieve the 2nd of it's losses. The 2nd lien holder is definitely in a bad position these days and usually get pennies on the dollar.
Web Reference: http://www.felixhung.com
0 votes Thank Flag Link Sat Jan 1, 2011
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