We get many inquiries from those who seek help after a foreclosure action has already been commenced. Many, understandably, want to keep their home and we offer services in loan modification/loss mitigation applications. If, however, your loan modification/loss mitigation application has been denied or is not a viable option for any reason or no reason (it’s the bank choice at the end of the day after all) and you cannot avoid foreclosure, you might want to consider settlement options such as a Deed in lieu of foreclosure or “Cash for Keys” offer.
DEED IN LIEU OF FORECLOSURE
A Deed in lieu of foreclosure could be a solution to avoid the stressful and costly foreclosure process. A deed in lieu of foreclosure is a voluntary agreement between the borrower and lender transferring the ownership and all interest of the property to satisfy the defaulted mortgage loan. To be eligible, you must prove that the fair market value of your home is below than your current indebtedness and there must not be any junior lien or judgment on your property.
Benefit 1: No deficiency judgment
Depending on the value of your property, the best advantage of it is that you can be released from any personal liability related to the mortgage loan. When it comes to the foreclosure auction, a deficiency judgment could be pursued against you if the foreclosure sale didn’t produce enough funds to pay off the loan in full. However, once you and the lender entered into a deed in lieu, the lender may not pursue a deficiency judgment on your mortgage.
Benefit 2: Time-saving and less-cost
Also, you can save your precious time along with the cost by this deal. Instead of going through the formal foreclosure which can take 6 months to more than a year, depending on your situation, a deed in lieu of foreclosure takes a relatively short amount of time with less stress. You can also avoid the legal expenses which will likely increase as the traumatic foreclosure proceeding draws out over a long period of time.
CASH FOR KEYS
Another option may be a Cash for Keys deal. You convey the ownership and/or the possession of the property to the bank or new owner within the designated time, and get compensation in return. In exchange, you need to vacate the property in “broom clean” condition as most New York State sales contracts require. “Broom clean” does not have any specific definition but generally a house should left free of personal belongings and relatively cleaned up. Cash for Keys usually happens when the bank purchases the property and it becomes REO or an investor buys out the loan. The bank/new owner prefers the occupants to move out as soon and clean as possible to sell the REO and minimize the loss or renovate and resell at a profit. In either case, time is money to them and you can use that to your advantage.
Financial aid on moving expenses
Moving out of your home is a difficult thing to do. But if you can at least cover some cost such as a security deposit for your new place or renting a moving truck, that may help take the sting out a bit. Depending on the situation, such a compensation can ranges from a few hundred to a few thousand dollars, but sometimes the bank might reject any payment. As such, negotiation is the key part of a successful deal. There are certain tactical elements that can be used in such a negotiation.
Less damage on your credit
If you can avoid the foreclosure or deed in lieu by making Cash for Keys deal successfully, your credit might not be impacted as badly. A foreclosure action, deed in lieu and eviction may remain on your credit report for up to 10 years and may cause you bothersome credit problems as you try to move forward.
The key difference between Cash for Keys deal and a Deed in lieu of foreclosure is simple. A deed in lieu of foreclosure is a settlement tool to release your mortgage between you and your lender before the foreclosure. On the other hand, Cash for Keys deal usually plays out when a new owner is on the scene and they want to save the time and expense of an eviction action and instead pay you directly in exchange for a speedy and voluntary surrender of the premises – basically they want to accelerate your move-out process by covering your fee for voluntarily vacating. As well, remember, that you can pitch a Cash for Keys deal before the foreclosure action has commenced along with the deed in lieu of foreclosure.
Even though the lender agreed on either a deed in lieu or Cash for Keys, there might be a balance that you still have to pay. You need to take a close look into the terms and conditions of the deal before you sign anything. And remember, since these deals are all voluntary, the bank might simply not offer any monetary benefits. Thus, it is crucial to explore and weigh ALL the benefits and detriments for ALL the possible options to arrive at the best. Each scenario has particular details which may determine the best choice.
If you are in default and facing a foreclosure action and would like to learn more about these options, contact us at 718-539-1100 or firstname.lastname@example.org.