Non-Recourse Loan: How About Some Recourse In A Deed In Lieu?
We're handling more and more deed in lieu agreements, typically in these situations:
- state foreclosure process is very, very long (such as Florida, where judicial foreclosures clog up the courts)
- the parties desire to avoid publicity (in that a DIL will not hit the papers)
- states where the borrower has a redemption right after foreclosure
- other reasons
Often, the loan is non-recourse against the borrower - with "bad boy" exceptions that form the basis for liability against the other assets of the borrower and (typically) the key principal of the borrower.
So, here's the question: if the borrower is willing and desires to do a deed in lieu, then . . .
- should the deed in lieu transaction itself be FULL recourse, so that a breach of the agreement (example: refuses to close) gives the lender\purchaser something other than specific performance (which is yet another law suit to go along with the judicial foreclosure - in a clogged up court system)?
- without some recourse, how does a lender know that the DIL is not a delaying tactic?
- should the DIL agreement contain a liquidated damages clause (thereby eliminating the need to prove damages)?
- should the conveyancing deed (from the borrower\seller) be a general warranty deed?
- should the borrower\seller place a deed into escrow at the time the DIL agreement is signed (to be released to the lender\purchaser upon a borrower\seller default under the DIL agreement)?
- in the DIL agreement, should the borrower\seller consent to a receiver (if it breaches the DIL), with the receiver having the express power to market and sell the property?
From my perspective, the answers are yes, (n\a: rhetorical question), yes, yes, yes and yes.
They are all good choices.
- What do you think?
Please post your thoughts below.
