Difference between something in lieu of foreclosure and foreclosure. I read that both ways the lender gets the property back. So what's the difference. My brain is very tired and stressed cause of husband stroke. Can't process. Concepts real good now.
The foreclosure process can be shorter or longer, depending on whether your state mandates (a) foreclosure in equity (i.e., litigation), or (b) by advertisement.
The former requires suing the mortgagors and can take several months.
If your state (and I cannot tell from your profile where you live) allows foreclosure by advertisement, it would be a shorter process.
In a Deed in Lieu process, the borrowers execute a Deed transferring the property back to the lender, in consideration of the lender foregoing its right to foreclose. The borrower loses ALL equity in the property, but avoids the foreclosure process.
If the property is foreclosed, it can be a dragged out process. And for anyone living in the home, it can be very, very unsettling. I have only one recent experience with residential foreclosure, after my sister died. The lender was obnoxious, refused to discuss issues, hired a local realtor who showed up w/o notice and wanted to inspect the house. The attorney handling the foreclosure was one well known in the community for its aggressiveness and lack of respect to homeowners. It lived up (or down ) to that nasty reputation.
In my experience, these kinds of creditors' rights attorneys are very, very unpleasant to deal with.
If the house sells at auction for less than is owed to the lender, depending on terms of the original mortgage, it can sue for a deficiency judgment. That's the difference between what the lender recouped at the foreclosure sale and what is owed on the mortgage. Foreclosure statutes in the state in which the home is located govern whether deficiency judgments can be obtained.
An example: if the house sold at foreclosure for, say, $150K, but the amount due on the mortgage was $175K, the lender could sue the borrower for $25K.
If you go with the foreclosure route, check with your attorney to determine if there's a deficiency judgment clause in the mortgage. If this is your mother's house, ask how a deficiency judgment suit would affect her estate. This could get complicated, and nasty.
A deed in lieu process is much simpler and quicker. If you want to relinquish control of the property, this is a speedier and less stressful method.
Is this your mother's home, in which your brother lives, if I recall correctly?
What generally would happen next is that your attorney would send another demand letter, with an outside date for (a) making payments (b) present a payment plan to bring the arrearage current (c) agree to consider a "workout" agreement (delicately called something else but I forget what) or (d) agree to a deed in lieu or (e) recognize that foreclosure is imminent.
The commercial mortgage would specify the timelines; I don't recall specifically how much time had to elapse and how far behind the payments had to be to justify institution of foreclosure. If the woman made some payments, that could start the period running again.
Your attorney would be the one to be on in contact with the lender to determine as well what it's wishes are. It may not want to wait any longer, especially if the loan is already classified as "non-performing."
BTW, we always sent demand letters by certified mail, return receipt requested, so there could be no claim that the letter wasn't received. If the woman doesn't answer and proceedings are instituted, your attorney might have to advertise if she isn't available to be served. But this aspect is definitely one your attorney would handle.
For our situation, a deficiency judgment wasn't an issue. I do see your point though, if the mortgage was a commercial one and the mortgagor was a business entity. I don't remember all the terms of the workout agreements prepared by the attorneys for whom I worked, but I'm sure they addressed this issue, and if they didn't it would likely have been addressed by the mortgagor's attorney.
The business issue thought was that generally these were nonperforming mortgages, some of them construction loans. As long as the property was sitting idle and construction stalled, it was a non performing loan. So the mortgagee had an incentive to get the property built up, foreclosed in equity, hired its own contractors, then sold the properties to turn them from liabilities to assets.
Interesting point though.
The advantage of deed in lieu is that you can negotiate with the lender as to how (if at all) to deal with any deficiency between the loan balance and what the place is worth. If the property is foreclosed, a deficiency judgment may or may not be obtained, depending on the state rules; California rules are interesting in that there are two alternatives:
- Judicial foreclosure. The lender goes to court and gets a judgment. When the property is sold, you are responsible for any deficiency. But this responsibility is an unsecured IOU, which will be difficult to collect (after all, had you any money, you would have paid the mortgage), and there are court and attorney's costs as well. As a result, judicial foreclosures are uncommon.
- Trustee's sale. The trustee under the trust deed (equivalent to a mortgage), when instructed by the beneficiary (the actual owner of the debt instrument), sells the property at auction. The beneficiary can bid up to the amount due on the loan, but no more; usually, this is the winning bid. A deficiency judgment cannot be obtained in this case; the borrower is off the hook.
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