Real R OI
9 Steps to a Deed-in- Lieu-of Foreclosure THERE IS A RIGHT AND WRONG WAY TO HANDLE A DEED-IN-LIEU.
by Bruce Kellogg
t a recent meetup, I met a man who had recovered a property
liens, or small ones (e.g., “garbage” liens), that you are willing to pay in escrow, then have a Deed-in-Lieu- of-Foreclosure drawn up for the defaulting borrower(s) to sign. These deeds are special because they have a recitation of several paragraphs on them called an “Estoppel Affidavit.” The borrowers affirm that they are deeding freely without coercion or duress and are not being compensated beyond forgiveness of their debt. with this process, and escrow closes, then you need to return their original note marked “paid” to them. In addition, escrow needs you to sign a Full Reconveyance of the mortgage or deed-of-trust in order to insure your clear title. And that’s the right way! • NO. 9 If the borrowers go through
are delinquent, then pay them current. Get a receipt to give to escrow because some counties are slow to update their records. Find out the status of any senior loans. Call first, but if the lender refuses due to privacy rea- sons, have escrow or your attorney make the request. Pay the senior loans current, preferably through escrow. If paying them yourself, be sure to get a receipt for escrow. See the property. If it is within driving distance, visit it personally. If not, hire a service like www.wegolook. com to go take pictures. If the property is a rental, try to get the defaulting borrower to turn over security deposits and any advance rents. You might not get this. When the title report comes back, you need to check for any liens and judgments. If these are present, then you need to foreclose to shed them from your title. You have no choice. NO. 4 NO. 5 NO. 6 NO. 7
from a defaulting borrower on a note they had between them. Looking to save costs, the noteholder accepted a deed and promptly recorded it. Later, when he went to refinance, he discovered several liens and judg- ments on the title that entirely wiped out his equity. Sad tale, but true, and this wrong way of doing a deed-in- lieu happens a lot. So, what is the right way? Follow these nine steps to ensure your equity is secured. Open an escrow, and order a title report. Specify that involuntary liens (liens, judgments, etc.) are to be searched as well as voluntary liens (mortgages or deeds-of-trust). Expect to buy title insurance, and pay escrow costs. If you received an insurance policy from the borrower, and were named as an “additional insured,” call the company and find out if the policy is still in effect. If it is not, order a policy of your own. You need protection. NO. 1 NO. 2
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Bruce Kellogg has been a Realtor ® and investor for 38 years. He has transacted about 800 properties in 12 California counties. These include 1-4 units, 5+
apartments, offices, mixed-use buildings, land, lots, mobile homes, cabins, and churches. Reach him at firstname.lastname@example.org or (408) 489-0131.
NO. 3 Check the property taxes with the County Tax Collector. If they
If there are no involuntary
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