Question:

I want to offer a deed in lieu of foreclosure and I have a second mortgage – what happens?

Answer:

A deed in lieu of foreclosure and a second mortgage, or other existing liens are related. Not only are deeds in lieu of foreclosure difficult to the lender to accept, but they do not remove subordinate liens.

By accepting a deed-in-lieu the lender is actually doing a favor to the borrower. Such a property is usually in need of repair and renovation. Lenders don't usually long for such homes.

If the lender accepts a deed-in-lieu, a second mortgage and any other junior liens will still hold. The first mortgage lender may have to pay on lien claims, or otherwise may still have to deal with those encumbrances in foreclosure process.

The deed-in-lieu is not a cheap transaction.

Not only is the lender taking a deed to a usually rundown property with possible junior liens on it but the deed-in-lieu foreclosure is a costly procedure itself. The lender has to pay title, recording and inspection costs, too. That is why deeds-in-lieu are often heavily negotiated.

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