Full question:
Wish to purchase a 'Deed-In-Lieu of Foreclosure' form to transfer title from an individual to an individual. The individual receiving the new deed is to foregive any and all mortgage debt from the individual transferring title back to them.
- Category: Real Property
- Subcategory: Foreclosure
- Date:
- State: Ohio
Answer:
With a deed in lieu of foreclosure, a homeonwer/borrower essentially is giving the property to the lender instead of incurring the expense of a formal foreclosure. This situation typically arises when the borrower is late with payments and is incurring fees. Often the property is not worth what is owed to the lender and therefore cannot be sold in a traditional manner to a new owner.
A deed in lieu of foreclosure is a method sometimes used by a lienholder on property to avoid a lengthy and expensive foreclosure process, With a deed in lieu of foreclosure (DIL), a foreclosing lienholder agrees to have the ownership interest transferred to the bank/lienholder as payment in full. The debtor basically deeds the property to the bank instead of them paying for foreclosure procedings. Therefore, if a debtor fails to make mortgage payments and the bank is about to foreclose on the property, the deed in lieu of foreclosure is an option that chooses to give the bank ownership of the property rather than having the bank use the legal process of foreclosure.
A DIL can be used in limited circumstances. The debtor must have exhausted all efforts to sell the home professionally marketed at it's as-is, fair market value. The debtor also can't have another mortgage in default and must not have the ability to make the monthy payment or make up the difference between the sale price and what is owed.
When a lender agrees to accept a deed in lieu of foreclosure, there is no guarantee that it will forgive any outstanding balance owed under the promissory note. However, it is common for the borrower to ask for that debt forgiveness. If the lender agrees, it is wise to document it in writing.
One thing to remember also, is that a deed in lieu may generate unwelcome taxable income based on the amount of your "forgiven debt." Before completing the process, it may be beneficial to discuss the situation with a tax professional.
Currently we do not have a Deed in Lieu of Foreclosure form for Ohio. However, our attorneys can draft one for your general situation.
This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.
