Can You Fight a Foreclosure if You Tried to Do a Deed in Lieu?
- Foreclosure is the legal process the lender goes through to sell the property to recoup funds from a defaulted loan. In a property loan, the lender typically holds a lien on the property, to secure the debt. The lien gives the lender the right to foreclose when the borrower fails to meet the terms of the loan agreement.
- When a borrower is unable to meet the terms of a property loan, one option is to initiate a deed in lieu of foreclosure. It is an alternative to foreclosure and does not involve a lawsuit. It accelerates the ultimate outcome, which is the borrower losing the property. A successful deed in lieu of foreclosure requires the agreement of both the borrower and lender.
- While a deed in lieu of foreclosure is sometimes called a "friendly foreclosure," this doesn't mean the lender is anxious to accept the borrower's offer. The lender has reason to refuse a deed in lieu of foreclosure, because, in doing so, the lender loses certain rights. When accepting a deed in lieu of foreclosure, the lender accepts the property subject to all junior liens against the property. Junior liens are eliminated in a formal foreclosure. The lender also loses whatever rights it has regarding private mortgage insurance and Federal Housing Administration (FHA) and Veterans Affairs (VA) guarantees. Because the lender has valid reasons for rejecting a deed in lieu of foreclosure, the rejection gives the defaulted borrower no advantage to fight a foreclosure.
- A borrower's ability to fight a foreclosure procedure depends on his rights, which vary according to loan type and state laws. In some situations, the lender must go through a court process, but some states allow non-judicial foreclosures, which do not require a court process. With a non-judicial foreclosure process or a deed of trust loan, the lender has an easier time foreclosing on the borrower.