Such matters are often outside the lender's control, and title matters must be cleared quickly in order to close the transaction expeditiously. Even if the debtor promises to remove subordinate liens and encumbrances prior to transfer of the property, he/she may not be able to do so, especially where there are numerous liens or judgments outstanding. In such a situation, the lender will have to foreclose its mortgage, with the attendant expense and time involved to obtain clear title. A lender should also hesitate before accepting a lieu deed where there are outstanding subordinate liens or judgments against the property. Otherwise, the lender may face valuation and allocation problems, title problems, and/or problems in connection with subsequent foreclosure of the remainder of the property still subject to the mortgage, with all the additional cost and time involved. For example, the lender should not accept a partial conveyance of the property unless the entire mortgage debt is released as a result of the partial conveyance. Sometimes a lender should not accept a lieu deed. See, e.g., Sprunk v First Bank Western Montana Missoula, 741 P2d 766 (Mont 1987) (mortgagee did not fraudulently induce mortgagor to grant deed in lieu of foreclosure where mortgagee prepared documents stating amount of debt owed by mortgagor, truthfully stated total amount of debt, and released mortgagor from personal liability). Finally, if there is no equity in the property above the amount of the outstanding debt, the transaction will not be susceptible to being set aside by a bankruptcy court or a court of equity if the borrower later files for bankruptcy or attempts to rescind the transaction based on fraud or coercion. Third, the publicity, time, and expense of a foreclosure action can be avoided. Second, the transaction can be quickly negotiated and completed with fee title vesting in the lender upon recordation of the deed so that title is immediately marketable. First, the lender becomes the owner of the property, allowing the lender to control its operation, take immediate steps to maximize its economic value, use and obtain all its income, and preserve valuable contracts and tenants. There are several advantages to a lender in accepting a deed in lieu of foreclosure. Because Illinois, Wisconsin, and Indiana case law on this topic is sparse, an examination of federal case law and case law from other states is helpful. The terms and conditions under which a borrower will grant and a lender will accept a deed in lieu of foreclosure are highly negotiable and will depend on the relative bargaining positions of the respective parties. Acceptance of a lieu deed terminates the liability of the borrower and all other persons liable for the mortgage debt unless there is an agreement to the contrary made contemporaneously with the lieu deed transaction. The mortgagee takes title to the property subject to existing claims or liens affecting the property, but the mortgage is not merged with the lender's title to the property. DEEDS IN LIEU OF FORECLOSURE: ADVANTAGES, DISADVANTAGES, AND DRAFTINGĪ deed in lieu of foreclosure (lieu deed) is a conveyance, by the owner of property encumbered by a mortgage, to the mortgagee, in full satisfaction of the obligation secured by the mortgage.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |