4 Reasons Banks Are Pushing Homeowners Into Deed-In-Lieu Instead Of Short Sale

It seems Loan Servicing companies are pushing their delinquent borrowers to do a Deed-In-Lieu rather than a Short Sale.  This has been cause for speculation among Realtors doing Short Sales.  Why would the banks want to do DIL in a down market (Florida), when a Short Sale now would net them more money and help the homeowner get their lives and their credit back?  I have a saying:  Everyone works their pay plan. Find out who gets paid and you’ll understand their behavior.  In this case, of course lenders are pushing Deed-In-Lieu.  Look at their pay plan:

  1. They avoid all the legal costs inherent in a foreclosure.
  2. They get to sell or rent the property (and at the very least, preserve it).
  3. They can pursue the borrower for the deficiency afterward.
  4. They can insert fine print in the DIL agreement preventing the homeowner from filing any future claim against the bank for wrongdoing (e.g., robo-signing).

Deed-In-Lieu means the borrower gives the deed to the bank instead of relinquishing it through the foreclosure process. It releases the lien on the property but the debt is not forgiven. It’s also called “Friendly Foreclosure” because IT IS STILL A FORECLOSURE!!! Ever had a car repo’d? Whether you send Ford the keys or they come get the car…it’s still a REPO.

NOTE: In Florida, lenders (and HOAs) have up to 5 years to file for a judgment. Things may be bad for the borrower now, so the bank just waits for them to get back on their feet to get a judgment. Once they have a judgment, the lender can pursue the borrower for up to 20 years (10 years plus a 10 year extension). Lenders can get a judgment and put a lien on a borrower’s other assets (including other property) down the road.
NOTE: California is a non-recourse state, which means the bank can’t come after you after a foreclosure. Unfortunately, that does not apply to 2nd mortgages or HELOCs or HOAs — they can come after you with a vengeance!

One Response to “4 Reasons Banks Are Pushing Homeowners Into Deed-In-Lieu Instead Of Short Sale”

  1. I realize this is a dated post but it seems that the situation hasn’t changed much from when this post was written. Many of my friends are still having issues working with banks to sell their homes.

    Buyers are also affected by the long wait times. I hope the situation clears up and the housing market gets more stable.

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