When is the right time to ask for a deed in lieu of foreclosure?

Asked by R. Davis, Miami Beach, FL Wed Apr 29, 2009

I am 2 month behind on mortgage, hoa, proptax. (Shortsales are not selling in my building at all)
Modification was denied (laid off).
Unfortunately i put 65000 dollars down in 2005 which i will loose.
When should i ask the bank about deed in lieu and will i have to owe money to condo association and
or irs?

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Keith Manson- Metro Milwaukee Wisconsin’s answer
Keith Manson-…, , Milwaukee, WI
Wed Apr 29, 2009
You can ask for a deed in leiu but typically that is the last work out banks will accept. There are some issues with a deed in leiu before banks will accept it: property needs to have no other liens except the first mortgage, vacant and no damage to property and must be in broom swept condition.

So there can not be any outstanding condo dues or proeprty taxes. Credit wise a foreclosure and a deed in leiu are treated the same. Your credit report will be reduced by 2-300 points. There should not be no issue with federal irs tax because of the 2007 debt forgiveness act. However, there could be state tax for the short fall between value and mortgage balance. You should check this will your tax advisor to ensure this would hold true. When I worked for a mortgage company a 1099 A was filed and not a 1099C was not filed on a deed in leiu so even before theis 2007 act the forgiven income was not taxable at least with the companies ?I worked for the mortgagors completing dil's.

Good Luck!

Keith Manson
First Weber Group
Certifed Distressed Property Expert
GreenField, Wisconsin
0 votes
Mott Marvin…, Agent, Sunny Isles Beach, FL
Wed Apr 29, 2009

Offering the lender "The Deed In Lieu" of foreclosure would be the very last resort. I understand that every option must be exhausted before a lender will consider this course of action. It is my understanding that the property should be on the market at fair market value for a period of at least 3 months- the trick is figuring out what "fair market value" is! I have reviewed the criteria for a few lenders where a borrower has requested the same.

Income Tax Returns, Pay Stubs, Income/Expense Statements, P&L (If Self-Employed), Bank Statements, etc. It is best to have an open dialogue with the lender- ask for ANY & ALL options that they can offer.

Lenders are very aware of the situation, it is NOT just in BLU- it is happening everywher- just about.

Mott Marvin Kornicki, Broker/Associate
Real Estate In Miami Beach, Florida

0 votes
Modman, , New Jersey
Wed Apr 29, 2009
Is it your primary residence?
0 votes
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