Jim Hastings, Broker/Owner of Hastings Brokerage in Las Vegas and FORCE Advisory Council Vice Chairperson, and Marlon Alameda of Hastings Brokerage, speak about the Deed in Lieu process.
Foreclosure can be an unpleasant process for homeowner and lender alike. The months, or even years, of paperwork and legal expenses wear on everyone.
Fortunately, there are ways to avoid foreclosure that banks are using to make the process easier, one of which is a deed in lieu.
A Bit of History
Jim Hastings explains that the states are divided into judicial foreclosure states and nonjudicial foreclosure states, with both options available in a select few. Although nonjudicial foreclosure used to be the easy choice for most banks, many are now returning to judicial foreclosures because the legal complications of the other began to outweigh the benefits. The banks are left with no good options, so they do whatever they can to avoid foreclosure like offering a deed in lieu.
What is the process?
Typically, the details have already been worked out between the homeowner and the seller by the time a realtor gets involved in the deed-in-lieu process. When the bank decides a deed in lieu is the best course of action for the individual, the realtor receives the details of the deed-in-lieu contract and visits the property to ensure that everything is in accordance with the agreement. This includes things such as making sure all the appliances are left and no damage has been done to the house. Hastings said, “They let us know ahead of time what they negotiated, and then we know what we’re looking for when we’re on the property.” If everything is as it should be, the agent then delivers the check to the homeowner. Hastings says that for the realtor, deed in lieu transactions are just a part of the selling process and come along with the house. The agent is just serving as the lender’s eyes and ears and ensuring that all requirements are met, that the homeowners get their money, and that the process goes smoothly.
How common are deed in lieu transactions today?
“They’re still not very common,” Hastings states, “but it is much more common than in the past. We are seeing it more and more.” It completely depends on whether the lender thinks it is worth it. If they think that they can save time and money through the transaction, they’ll go through with it. “Of course, their first choice is always to try to keep the property performing,” Hastings said. When that is no longer possible, however, a deed in lieu can be a good alternative to foreclosure.
What are the benefits of a deed in lieu?
Although a deed in lieu could still leave a bad mark on your credit score, it’s much better than having a foreclosure on your record. In addition, homeowners walk away from the deal with cash in hand. Hastings says that homeowners are typically paid around $10,000, but he has seen as low as $2,500 and as high as $20,000. It works well for lenders because they don’t have to worry about the homeowners damaging the property before leaving and can get it performing again as quickly as possible. It’s a win-win for agents as well, Hastings explained, “There’s no hassle, everyone’s happy, you just go inspect it and you’re done. It’s super clean.”
How often do people accept?
“Almost always; it’s usually a pretty good deal,” Hastings said. Sometimes people will turn down a deed in lieu, though, just to stay a little longer. He recalls a case when someone turned down an offer of $10,000 and only got offered $2,500 when the bank reached out to her again two years later.
“The banks get a lot of flak from the media and from people in general, but a lot of them are really trying to do the right thing. I’ve worked with the senior people at Fannie Mae and got to help develop policy, and they’ve told me, ‘Do whatever it takes to make sure a family doesn’t have to split up under our watch.’ We do some crazy cool stuff.”