Massachusetts Real Estate

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Deed in Lieu of Foreclosure and Short Sales

http://www.dreamstime.com/Olivierl_info'A deed in lieu of foreclosure aka (cash for keys) is when a home owner conveys all their interest in a property to the lender in order to avoid foreclosure proceedings. In the typical deed in lieu of foreclosure scenario, the mortgagee is in default i.e has not been making his or her mortgage payments.

Proceeding with the deed in lieu of foreclosure offers advantages to both the home owner and the lender.

The advantages to the borrower include the potential release from a large debt, less impact to your credit scores than a foreclosure, and also the avoidance of the public embarrassment of going through a foreclosure.

The lender would consider a deed in lieu because it saves them the time and expenses involved with a repossession. Most often when a bank agrees to do a deed in lieu of foreclosure the fair market value of the property is what the lender will be looking to receive.

 

In many cases the current value of your home is much less than the remaining mortgage balance.

In this scenario the bank may or may not agree to a deed in lieu. Most of the time a bank will not do a deed in lieu if there are 2nd mortgages, home equity loans, or tax liens against your property.

Another option besides a deed in lieu is what is known as a short sale. A short sale is a legal lender approved solution designed to assist those home owners who are financially strapped to get out from under their mortgage debt.

A short sale is negotiated through the mortgage holder of an owners home where by the mortgage holder agrees to take less than what home owner owes on the property. A short sale is the more common route to avoiding a foreclosure. In today's tough economic environment most lenders will now consider doing a short sale.                                                                                                                                              

Remember banks are not in the business of owning Real Estate. They would much rather do a short sale than be saddled with marketing, selling, and possibly fixing up a home in order to sell.

This is one of the biggest reasons why the short sale is the more common route to avoiding foreclosure than a deed in lieu.

If you have come under financial stress and are considering a short sale to avoid foreclosure, I would recommend reading the article I wrote Foreclosure avoiding it through a short sale or loan modification.

The article discusses in depth what a short sale and loan modification are and how they can help you get out from under your mortgage debt.

Some of the comments in this article are as good as the post itself as many of them are written by Real Estate experts on the topic.

If you live in the Metrowest Massachusetts area and are thinking about a short sale, I would be happy to discuss this situation with you confidentially.

If you live outside the Metrowest MA area please feel free to get in touch as well. I am connected to a large network of Realtors and would be happy to put you in touch with a Real Estate agent that has experience with short sales in your area.

See also Massachusetts Short Sales Real Estate Agent.

 

Notice of Foreclosure and Real Estate Lockbox & Foreclosure notice images are owned by Olivier Le Queinec at dreamstime.com and are copyrighted.

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The above information on Deed in lieu of foreclosure and short sales was provided by Bill Gassett, the teamRE/MAX Executive Realty Hopkinton leader for the #4 RE/MAX Team in Massachusetts in 2007. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-435-5356. Bill has helped people move in and out of many Metrowest towns for the last 22+ Years. Bill's office is conveniently located in the center of Hopkinton MA at 77 Main Street.

I have a passion for Real Estate and love to share my marketing expertise! 

Thinking of doing a short sale in the Metrowest Mass area see Metrowest Mass short sale Realtor. Want to have MLS access to beat other buyers to your dream home? Sign up with no obligation at my MLS Property Finder Site.

I service the following towns in Metrowest Massachusetts: Hopkinton, Milford, Upton, Southboro, Westboro, Ashland, Holliston, Mendon, Hopedale, Medway, Grafton, Northbridge, Uxbridge, Franklin, Douglas, and Framingham MA.

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Bill Gassett is a thirty-two year veteran to the real estate industry. He enjoys providing helpful information to buyers, sellers and fellow real estate agents to make sound decisions. His work has been featured on RIS Media, National Association of Realtors, Inman News, Placester, RESAAS, Credit Sesame and others.

Comment balloon 52 commentsBill Gassett • December 16 2008 03:16PM

Comments

Hey Bill, Just thought I'd stop by and say hello. Great article by the way. I need to finish my piece on the CitiMortgage. We should be closing tomorrow. 30 days start to finish, still can't believe it!

Posted by Samantha Nichols, Massachusetts Real Estate Specialist (ERA Belsito and Associates) over 10 years ago

Sam for a short sale that is absolutely incredible. In fact it must be a record:) Outstanding work!

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) over 10 years ago

Bill this is very informative and it is good for the consumer to know this is an option.  The big drawback  with the deed in lieu is that  so many properties are now worth less than the money owed especially for those who bought at the height of the market.

Posted by Jennifer Fivelsdal, Mid Hudson Valley real estate connection ( JFIVE Home Realty LLC | 845-758-6842|162 Deer Run Rd Red Hook NY 12571) over 10 years ago

Jennifer - Thanks. It is true that many of the properties that once may have had a shot at doing a deed in lieu are now more suited for a short sale. I was working with one seller client that was close to doing a deed in lieu but then ended up doing a short sale when the Massachusetts Real Estate market continued to drop.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) over 10 years ago

Bill, This is a fantastic article. I was working on a similar post for my "outside blog". I guess great minds think alike. :0)

Posted by Mana Tulberg, Real Estate Agent - Camarillo CA (805 County Real Estate) over 10 years ago

Thanks Mana. There are plenty of folks that do not realize they have options besides letting their home head into foreclosure. It would be great to help out those that need some good Real Estate advice.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) over 10 years ago

Bill, excellent explanation of the terms that have become so familiar to us and to the nation as a whole. 

Posted by Gena Riede, Real Estate Broker - Sacramento CA Real Estate (916) 417-2699 (Riede Real Estate, Lic. 01310792) over 10 years ago

Informative article Bill.  Any client would do well to give you a call on the matter.

Posted by Terri Visser, CRS - 12 Years Selling Central Oregon Real Estate (Desert Sky Real Estate, LLC) over 10 years ago

Gena - Thanks a bunch. There is no doubt that 2008 will go down in the history books as a year that most would love to forget about especially when it comes to Real Estate. There is no doubt going to be more trouble ahead for some that have managed to make ends meet. I am hoping I can educate a few more and possibly save them from financial disaster.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) over 10 years ago

Teri - Thanks. It certainly is important to work with a Realtor that knows what they are doing when it comes to short sales. There is no room for error when a foreclosure could be looming in the near future.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) over 10 years ago

thanks for the info on deed in lieu of foreclosure, ...  i am a big proponent of loan modification as it is the only real solution that helps the home owner

Posted by James Wexler (wexzilla.com) over 10 years ago

James the problem right now is that many banks have not started doing them. I suspect this could change as we head into next year.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) over 10 years ago

Lenders prefer the short sale right now.  Deed in lieu remains an option.  However, lenders prefer foreclosure to clear title to the property.  This is particularly true in states that permit foreclosures using the power of sale (as opposed to judicial foreclosures).

Posted by Ryan Shaughnessy, Broker/Attorney - Your Lafayette Square Real Estate Partner (PREA Signature Realty - www.preasignaturerealty.com) over 10 years ago

Lenders prefer the short sale right now.  Deed in lieu remains an option.  However, lenders prefer foreclosure to clear title to the property.  This is particularly true in states that permit foreclosures using the power of sale (as opposed to judicial foreclosures).

Posted by Ryan Shaughnessy, Broker/Attorney - Your Lafayette Square Real Estate Partner (PREA Signature Realty - www.preasignaturerealty.com) over 10 years ago

Ryan - Thanks for your legal expertise.  A larger percentage of the properties need to go the short sale route anyway. In my experience most home owners that are in need of financial assistance are already under water.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) over 10 years ago

More great topics on today's trying times.  Great job on your blog. 

Posted by Jason & Amber Gardner, We're Committed to Your Success! (Hasson Company, Realtors) over 10 years ago

Thanks Amber. They certainly are trying times. Unfortunately, we are not out of the woods yet and the beginning of 2009 will be marked by more short sales and foreclosures.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) over 10 years ago

Great article Bill.  I had to explain to another client today about short sales.  Knowing their home will not bring what they owe, we got started on a short sale listing. Good luck with your short sales.

Posted by Kay Van Kampen, RealtorĀ®, Springfield Mo Real Estate (RE/MAX Broker, RE/MAX) over 10 years ago

Kay - I hope the short sale process is not tedious and you are able to work something out quickly once you get an offer on the homes. Best of luck with it.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) over 10 years ago

Great information for consumers. Hope 2009 will be a better year for our economy.

Posted by Gita Bantwal, REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel (RE/MAX Centre Realtors) over 10 years ago

Gita - Thanks. I think we would all like to see the Real Estate market head back towards being fairly balanced. It looks like we have a ways to go before things are back to normal.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) over 10 years ago

Bill - I will agree with your follow up comment of "2008 the year to forget" - I do think that 2009 will provide an AWESOME Buying opportunity for those that will get off the fence -- Great informative post -- JE

Posted by Jason Ellis (Coastal REO Solutions - Myrtle Beach Short Sales & REO's) over 10 years ago

Bill, I wish the banks would get their act together and expedite the process of a short sale.  I've seen short sale application responses take 6 weeks to 6 months.  Don't they want to get these properties off their books sooner than later, and avoid costly attorney fees, etc. involved with foreclosure.  Many buyers submit an offer on a short sale, and give up and move on to another property during the waiting period.  Recently I represented a buyer on a short sale.  While we waited 2 months for a response, he lost his job.  Of course timing was good for him, rather than undertaking this mortgage and then losing his job, but the bank lost their buyer.  Also, I've heard rumors of banks accepting short sales or deed in lieu of foreclosure without first defaulting on the mortgage.  Does anyone know if that's true?  Finally, if that is true, what kind of impact would a short sale or deed in lieu have on their credit score/report, if they have not defaulted first? -Jordan

Posted by Jordan Mariano, ABR, ASP, REALTOR (Weichert Realtors) over 10 years ago

Jason I agree that 2009 offers opportunites in the Real Estate market like we have not seen in decades. It is rare to see interest rates so low combined with a large drop in property values. Some of the short sales in my area of Metrowest Mass are incredible values.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) over 10 years ago

Jordan in most of the cases the reason why the bank does not respond in a timely fashion is that because there are 1000 of files and not enough man power to handle them all. The banks are just not staffed properly to handle the volume. It is possible a bank would do a deed in lieu if there was enough equity in the home but it would beg the question of why the owner would want to do one if there was.

Getting a short sale done without any default ofthe home owner. is not the norm. Could it possible happen? I am sure it could but I would not count on it. In regards to your question about a short sale impacting the credit score would depend upon the bank report it to the credit companies. In most circumstances they do report.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) over 10 years ago

Bill, Here's my example (a common scenario in my area):

A couple has a home that is worth 200K, and they have a 200K mortgage balance.  They're still paying the mortgage by the skin of their teeth.  Let's say they'd have to bring 12,000 to the table to sell that house, but don't have it, and can't access the 12K in any way.  Its almost as if their only option is to default & then go into a short sale, foreclosure, or deed in lieu of foreclosure.  Obviously a short sale or deed in lieu is better on their credit report than a foreclosure, but it seems like almost all of the time they have to choose to default first to get out of their home (if they NEED to move).  The other problem with this is that after defaulting the mortgage balance is significantly higher with late fees, back interest & penalties.  What are your thoughts? - Jordan

Posted by Jordan Mariano, ABR, ASP, REALTOR (Weichert Realtors) over 10 years ago

Unfortunately it is true that most lenders do not want to discuss a short sale unless you are in default. I don't want to be up here on a pedestal giving advice but I believe in the example you mentioned if the owner is not going to be able to continue making payments the best course of action would be to find out if the bank will do a short sale.

If the lender says they will do one if the owner is in default, the home owner would need to miss a payment and go the short sale route. The owner is not going to need to worry about late fees and the like because most likely they will become part of what is "short".

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) over 10 years ago

Hi Bill, I would love to help you out w/your short sale questions. My group negotiates shortsales for all realtors in any state. We have also came up with a legitimate method to close these and avoid the seasoning for end buyers.

JD

Posted by Josh David, Purchase Specialist... www.joshdavid.us (Bridgeview Bank Mortgage) over 10 years ago

Josh - Questions? I am pretty well versed in short sales and work with an expert in the matter as well. I appreciate your offer of services though. I am curious what you mean by "avoid the seasoning"?

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) over 10 years ago

Bill - You were spammed above!  Some issues I've seen with deed-in-lieu is that lenders won't do them (per Richard Zaretsky) if there is a second lien held by another mortgage company.  Also, sellers need to remember that a deed-in-lieu of foreclosure is still a foreclosure on the credit report.  Short sale is least harm.  Thanks for promoting the subject.

Posted by Wendy Rulnick, "It's Wendy... It's Sold!" (Rulnick Realty, Inc.) over 10 years ago

Exactly Wendy! I mentioned this above in the post. I agree that the short sale is the most likely avenue to avoid a foreclosure.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) over 10 years ago

As an independent loss mitigator my most difficult task has been educating mortgage companies and their loss mitigation departments the importance of stating the amount they will accept on a short sale upfront as the best way to shorten the process, provide relief to their LMDs and get the property off of their books. Most LMDs are overwhelmed due to the increase of people not being able to pay their mortgages. It's ridiculous to go through multiple offers, dealing w/ each one individually, when the process can be shortened by determining the amount needed upfront. It takes a lot of patience and convincing, but once the LMDs "get it" everyone (LMDS, mortgage banks, Realtors, sellers and buyers) benefits.

It's difficult to change large corporate and bureaucratic methodologies, but it an be done even if it's one case at a time. Great post—thanks!

Posted by Linda Bourgault (lulugraphix-creative photography & fine art) over 10 years ago

The process of going through a short sale would certainly be a lot less of a headache if you knew up front whether or not the offer would be accepted. I am sure there are areas though where the values have dropped at a pace that would make the appraisal outdated though. I have a strong feeling that the government is going to put additional pressure on the banking institutions to push through the short sales at a faster pace. I know they are understaffed and have too many files to look at. They will be forced at some point to increase their man power.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) over 10 years ago

Bill,

I've got a bunch of short sales so I know all the steps you mention in avoiding foreclosure. It can be a long teadous process and a deed in lieu could be the last resort. I think the reasons why not everyone knows about the DIL is because it's not advertised. And the problem is as you said...if there are two different lien holders then it's usually a dispute on who gets how much.

Posted by Neal Bloom, Realtor CRS-Weston FL Real Estate (eXp Realty) over 10 years ago

Neal - Short sales are the typical route that most home owners end up taking because mot banks would rather not have another home in their inventory. It is harder and harder to get a deed in lieu especially when most people that are in that position are so far under water.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) over 10 years ago

Hi Bill,

We're beginning to see a few more deeds in lieu in this market. Not many, yet a few. However most of our lenders require the seller pay for a policy of title insurance before they will accept.

Posted by Lynda Eisenmann, Broker-Owner,CRS,CDPE,GRI,SRES, Brea,CA, Orange Co (Preferred Home Brokers) over 10 years ago

Lynda - The deed in lieu seems to be the far less common choice out here in Mass. There are far more short sales.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) over 10 years ago

I saw your blog posting about foreclosed properties. We offer a great tool to help you in competitive REO listings. www.foreclosurefeedback.com . The Asset manager's can login and see all of the feedback on their REO properties, see what you are doing to market them and print reports to document the need for price reductions. Call in to sign up instead of online and tell them Rick said to give you the first 90 days for free to try it out at 858-270-1055 ext 113. If your competition doesn't offer this, you will definitely have a leg up on them.

 

Rick

Posted by Rick Bengson (Showing Suite, Inc.) over 10 years ago

Good information. . thank you for posting it

Posted by Fernando Herboso - Broker for Maxus Realty Group, 301-246-0001 Serving Maryland, DC and Northern VA (Maxus Realty Group - Broker 301-246-0001) over 10 years ago

Fernando - Thank you my friend for the compliments. There are many who are facing a potential foreclosure who can avoid it here in Metrowest Massachusetts and I am trying to do my part to help out.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) over 10 years ago

Hi Bill, This is a very well done post. Deed in lieu- these days not too many people are able to do them here in Michigan. Now if we could get a bank approved price up front..... Some lenders are starting to look at that.

Posted by Marian Gregor-Ann, Arbor area Real Estate (Keller Williams) over 10 years ago

Thank your for the wonderfull information!!feather pin

Posted by Mobile Austin Notary, www.mobileaustinnotary.com (Apostille/Authentication/Embassy Legalization, Notary Public, Loan Signing Agent & Process Server Services) over 10 years ago

Marian & Jenette - Thanks for your comments on my article about short sales and deed in lieu of foreclosure. There are a lot of folks out there that need our help and don't know where to turn. There are options that people don't know about before it is too late. I have been successful so far getting all my short sales approved.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) over 10 years ago

Aloha Bill, Thanks for taking the time to write all of that. And... I do like your copyrighted pictures! In Hawaii these days it has become legislated on distressed properties. In general, it is a good thing as anything beyond the normal marketing of the home falls under the category of becoming a "Distressed Property Specialist" Some agents are acting in that role, and others, like myself, use a DPS to handle the transaction from contract to lender approval and then the REALTOR picks it back up. If one uses it correctly, it can save a lot of stress and limit a lot of liability.

Posted by Michael Hege, R (Beach Villa Realty,LLC) over 10 years ago

Michael I am in agreement with you completely as far as having a skilled professional handling a short sale. I know there are many Realtors that try to do it by themselves and in many instances this is a big mistake. I work hand in hand with a local attorney who has been doing them for a while. So far he has a 90% success rate. All of the short sales I have been involved with have closed. I am keeping my fingers crossed that this continues.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) over 10 years ago

Great graphics!  I have no idea where to get good art for my blog so there are no pictures so I'm really impressed with blogs like yours.  Beautifully written, as always.  Thanks for sharing!

Posted by Maya Thomas, Broker, Please see my client recommendations. over 10 years ago

Maya thanks for all your compliments on my article about short sales and deed in lieu of foreclosure. I just sent you an email about the graphics.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) over 10 years ago

Hi-here's my scenario.  The home has been on the market for 1 year in Jacksonville, FL.  There's a 1st and 2nd lien by two different lenders.  The house is worth less than what is owed on the 1st.  The owner has moved out and wants nothing to do with it.  She is trying to do a deed in lieu of foreclosure but the 2nd won't have anything to do with it since it's not in 1st position.  The funny thing is that they won't get any money anyway.  I guess they are holding out for short sale in hopes they can convince the 1st to give them something.  Your thoughts?

Posted by Marcy Gaines (SWAN Realty) about 10 years ago

The storm clouds are gathering. There's a huge shadow inventory on the horizon.

Just try a search on "housing bubble smackdown"

 

Posted by Dave Keys, Chief Search Strategist Real Estate SEO Expert (MOVE UP in Google Search Learn How Here) about 10 years ago

Great information!  Thank you for the post! 

Posted by Yuno Marioni (Coldwell Banker Bain) almost 10 years ago

Marcy - That sounds like it could be a possibility.

Thanks Yuno!

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) almost 10 years ago

I get asked this all the time about a deed-in-lieu of foreclosure.  Good stuff for reference here.  Thanks.

With the banks already owning as many properties as they do, it seems a bit easier to do the short sale now since they have been more willing to work with sellers doing a short sale.

Posted by Dan Quinn, Dan Quinn (The Eric Steart Group of Long & Foster Real Estate) over 9 years ago

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