Deed in Lieu of Foreclosure: When To Do A DIL? Any Title Insurance Issues In A DIL?
This is a series of blog entries in which we provide some quick answers to lenders' frequently asked questions (FAQ).
We've addressed deeds in lieu of foreclosure in the past (link). Here is some more information on it.
FAQ #32 - When should a lender (or servicer) seek/accept a deed in lieu agreement?
- State's foreclosure process is lengthy
- Immediate threat to the property (is a receiver a better option?)
- Borrower & Lender = common good
- Unable to sell/refinance the property
- Voluntary (on the part of Borrower)
- Unencumbered by multiple loans (and NO mechanics' liens)
- Avoid foreclosure taint
- The property is valued LESS than the loan (if this is not true, then other creditors will be motivated to attack the transfer)
FAQ #33 - What title insurance issues should be considered?
- Do NOT release borrower from warranties of title (in loan documents) as it will void title coverage
- Confirm: loan policy "converts" to or continues as an owner's policy
- SPE (owned by lender) vs. taking title in name of lender
- Creditor's Rights Issues: ALTA 21 not available
- Important: non-merger provision
- Decision: buy new owner's policy or merely obtain binder?
Thanks to Courntey Bristow for her insight, experise and help in putting this FAQ together.
To read the entire Tough Times FAQ series, please click here.
Two things should be kept in mind. First, none of these questions can be answered in a vacuum. Questions should be considered with a thorough review of the file and an interview with appropriate loan officers. And secondly, many of the questions are worth revisiting from time to time because subsequent events will impact the answers.
If you have thoughts, suggestions or questions on this topic, please post a comment below.
