‘Deed in lieu’ often faster, simpler than foreclosure
A: Oversimplified, a “deed in lieu” is exactly how it sounds — it is a deed in lieu (instead) of a foreclosure. You give the title back to the lender. In some cases, depending on the facts, you will not have to pay anything. Although, on occasion when I was assisting clients with such a procedure, they had to pay the lender a little money.
A foreclosure means that the lender tries to sell the property at an auction (foreclosure) sale. I say “tries to sell” because often there is no one interested in the property so the lender ends up owning it.
I did not know the answer to your specific question, so I reached out to my friends at the National Reverse Mortgage Lenders Association. According to Steve Irwin, its executive vice president, “the borrower certainly can sell the house and is only responsible for paying the lender 95 percent of the newly appraised value of the house through that sale.”
So do the numbers and see if you still may be able to sell the house.
But, Irwin added, “If that is not an option, then the borrower could pursue a deed in lieu of foreclosure. This is a typical deed in lieu process and not different from other (Federal Housing Administration) loans.” And of course, if that is not accepted by the lender, then foreclosure will have to take place.
Regardless of which route you take, your mother is obligated to ensure that taxes and insurance are paid until the loan is paid off. If she does not pay for these property charges, then the lender must advance funds to pay for these charges so as to protect the collateral. Such advances would be added to the loan balance and collected through the disposition of the property.
The foreclosure process is very time-consuming. The lender has to comply with state (and sometimes local) law, advertise the property in a newspaper of general circulation and in some states participate in mediation before the sale can take place.
Accordingly, either selling the property or giving the deed to the lender — that is, a deed in lieu — would be a quicker method for resolving this matter.