Why Won’t The Bank Simply Take a Deed in Lieu of Foreclosure?
By Douglas Jacobs, California Bankruptcy Attorney on Aug 28, 2007 in General Bankruptcy Information
Many people facing foreclosure would simply rather give the property back to the bank or mortgage company rather than having them take the property by operation of law. It will look better on a credit report, the home-owner won’t have to go through the notices and humiliation of a public auction and there won’t be a deficiency. It all seems much better.
But what’s in it for the lender? Well, it will save them the cost of the foreclosure process and a lot of time. In many states, foreclosures can take up to four months to complete. A Judicial Foreclosure can take even longer.
So why won’t the bank or mortgage company take the expedient way out and simply accept a deed back? It’s the same result – they get the property to sell.
But, for the bank, the advantage of the foreclosure process is that it wipes clean any subsequent lien or loan against the property. A deed in lieu won’t do that, and the bank could be stuck owing money to a second mortgage or a judgment. To the bank, it’s worth the money and time to make sure that there isn’t anything lurking out there impairing the property.
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