Deed in Lieu of Foreclosure Definition
It is a deed instrument that transfers the right of ownership in a property from the mortgagor (borrower) to the mortgagee (lender). Borrowers who are in default may choose this option for avoiding a foreclosure. In such cases, the borrower surrenders the deed to the property, typically the home, to the lender in exchange for the release of all obligations under the mortgage.
A Little More on the Deed in Lieu of Foreclosure
It is a title transferring document signed by the homeowner and notarized by a notary public. Both the parties must agree to this arrangement willingly and in good faith. Usually, this is the last resort for a homeowner to avoid a foreclosure after exhausting all other option. A homeowner agrees to sign such an agreement only when they know there are no options left for them to retain the ownership right of the home. A homeowner needs to surrender the house and move out from it after signing the deed as he or she loses the ownership of the home right away. Homeowners opt for this option to avoid the embarrassment of foreclosure as this agreement is done more privately. It also saves them the expenses and time usually associated with a foreclosure process.
References for Deed in Lieu of Foreclosure
Deed in Lieu of Foreclosure
Structuring the Deed in Lieu of Foreclosure Transactions, Jones, M. F. (1984). Real Prop. Prob. & Tr. J., 19, 58. In this paper, the ways by which the deed was restructured in other to compliment the foreclosure of transactions was studied and the benefit of this process was also explained in this paper.
Deeds in Lieu of Foreclosure: Practical and Legal Considerations, Murray, J. C. (1991). Real Property, Probate and Trust Journal, 459-534. The manner in which the deed was reconstructed in other for it to meet the criteria of the foreclosure was emphasized and this process was studied with the legal and practical advantages taken as special considerations.
Cost-benefit analysis of single-family foreclosure alternatives, Ambrose, B. W., & Capone, C. A. (1996). The Journal of Real Estate Finance and Economics, 13(2), 105-120. Over the years, it has been postulated that single-family mortgage lender has become conversant with the advantages of searching for alternatives which lead straight to foreclosure for borrowers who have in one way or the other become unable to play by the rules of their mortgage. According to this paper, the expected cost of foreclosure which was stated to tackle any problems has been parameterized in lieu to solving for the slimmest chance of the burrower’s success which is necessarily used in making more profits for lenders. According to t this study, stochastic steps are employed via the time distribution for foreclosure processing, house-price appreciation and property deposition
Evaluating the likelihood of default on delinquent loans, Gardner, M. J., & Mills, D. L. (1989). Financial Management, 55-63. According to this research paper, the focus was placed on the available information after which a loan has fully become neglectful when most managers begin to estimate the costs of increasing the rate at which information asymmetry are being reduced as well as the collective effort. This paper argues that the process by which credit managers are involved with the estimation of the probability default which helps to show that by making use of this information which is available at the time at which the loan has become delinquent, managers may be forced to reduce the potential credit losses.
Foreclosure by Contract: Deeds in Lieu of Foreclosure in Missouri, Kelley, R. (1987). UMKC L. Rev., 56, 633. According to this research paper, the deeds in lieu of the foreclosure in Missouri were studied. This foreclosure, however, is known as the foreclosure of the contract according to this paper. This study explains all that concerns the foreclosure of the contract.
Efficient mortgage default option exercise: Evidence from loss severity, Crawford, G., & Rosenblatt, E. (1995). Journal of Real Estate Research, 10(5), 543-555. According to this research paper, the option based mortgage default theory which includes the transaction cost. However, it should be noted that when transaction costs are taken into consideration, the rational burrower will only default when the value of the submitted collateral drops below the value of the mortgage by an amount which is equal to the net/total transaction cost. Also, this paper explains that for cost burrowers, the net transaction cost is positive and the standard measure of equity may sometimes be significantly negative by the time taken for the rational burrower to work with the default option. The conclusion drawn from this paper is that the foreclosure and servicing data gotten from a large north-eastern thrift supports the theoretical model and this method should be adopted.
The impact of interstate foreclosure cost differences and the value of mortgages on default rates, Clauretie, T. M. (1987). Real Estate Economics, 15(3), 152-167. According to this paper, most research on mortgage default focuses mainly on cost, characteristics of the mortgagor and the benefits in the mortgage world. According to these studies, the default rates have been adopted as a method which is being used to measure the mortgage risk. However, this paper presents a model in which the position of the lender has an effect on the default-foreclosure process. The empirical evidence gotten from the adoption of this method hypothesized that the value of the mortgage and the cost of the legal foreclosure affects the rates of foreclosure itself. Hence, a low foreclosure rate may mean that losses occur in the form of loan negotiation rather than in extravagant legal cost.
Residential mortgage default: a clarifying analysis, Waller, N. G. (1988). Housing Fin. Rev., 7, 321. This paper explains the residential mortgage default process and in achieving this, a clarifying analysis which explains in details the whole process was discussed in this paper.
Mortgage foreclosure prevention efforts, Gerardi, K., & Li, W. (2010). Economic Review, Federal Reserve Bank of Atlanta, 95. According to this study, the prevention efforts employed by the most mortgage which is otherwise known as the mortgage foreclosure prevention efforts was studied in this paper.
The value of the foreclosed property, Pennington-Cross, A. (2006). Journal of Real Estate Research, 28(2), 193-214. In this paper, the calculated price appreciation of the distressed property was examined as well as compared to the dominant metropolitan appreciation rate. The result gotten from this test indicates that the fact that the property is foreclosure means that it will still be sold at a very substantial discount which means, the price will be appreciated that the expected cost. The level of the discount become sensitive to various characteristics exhibited by the loan, house market conditions, bargaining position of the selling institution, and the legal restrictions.
The economic role of foreclosures, Kahn, C. M., & Yavaş, A. (1994). The Journal of Real Estate Finance and Economics, 8(1), 35-51. In this paper, special consideration was given to the economic consequences of changing the foreclosure rules. An analysis was carried out and this analysis shows that although, a decrease in the number of foreclosure rate can make the effect of the foreclosure more pronounced. However, when the foreclosure does not take place, a change in foreclosure rule will directly cause a change in the threat point of the borrower and lender in any form of renegotiation. Also, this paper studied the usefulness of a change in the foreclosure rules as regards the burrower’s welfare.