Full question:
I returned a home to the bank (deed in lieu of foreclosure), but the bank later sold the loan to a different bank, now the NEW bank is asking us for the money. I checked the title history and it shows the PREVIOUS bank as the current owner, but the NEW bank says that we have to pay to them now.
- Category: Real Property
- Subcategory: Foreclosure
- Date:
- State: California
Answer:
A mortgage loan is a contract and the parties in the contract are sometimes separate from the ownership of the property securing the loan. It is possible for a bank to assign its rights to collect a loan payment to another bank without assigning ownership of the property securing the loan. Whether the new bank may collect payment after a deed in lieu of foreclosure was given depends on the contract terms involved. I suggest reading the contract terms carefully to determine whether the bank agreed to forgive any outstanding balance owed in exchange for the deed in lieu of foreclosure.
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.
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.
