Sunday, December 2, 2012

Something Old is Something New Again..Deeds in Lieu are BACK!

Something old is something new again. There is one thing that I say ad nauseum…that distressed real estate is cyclical. If loan modifications are an option today, they will not be in the future but they will become an option later. This has certainly been true of Deeds in Lieu (DILs). Deeds in Lieu have not been much of an option since early 2010. However Fannie Mae is changing the process a bit and this may help many home owners. The GSE hopes that the new requirements for deed-in-lieu transactions will actually create more exit options for borrowers and has optimistically re-named the process a “mortgage release” instead of keeping the old “deed-in-lieu” title. Borrowers now have three options for deed-in-lieu transactions. They can still turn in their keys and move out, settling their debt by turning over the property as collateral in lieu of payment. If a borrower wants to remain in the home, however, they may qualify for a three-month transition option with no rent required. If they want or need to stay longer (such as because of an employment situation or school calendar) there is a 12-month lease with a market-rent payment option. These options will hopefully keep distressed borrowers in their homes and maintaining their properties rather than simply abandoning them. One of the disturbing DIL trends for me is that lenders and servicers offer DILs without agreements!! The home owner is left to take a leap of faith that certain events will or will not happen!! I recommend pushing HARD for an agreement that enumerates all of the terms and understandings of the parties. In addition to the deed-in-lieu changes, Fannie Mae has also released its servicers from obtaining approval to postpone foreclosure sales on mortgage loans more than 12 months delinquent. This may help lenders and loan servicers keep more families in their homes using the new, flexible “mortgage release” requirements. Paddy Deighan J.D, Ph.D

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