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What is a Deed in Lieu?


A Deed in Lieu of foreclosure (Deed in Lieu) is a disposition option in which a mortgagor voluntarily deeds collateral property in exchange for a release from all obligations under the mortgage. A Deed in Lieu of foreclosure may not be accepted from mortgagors who can financially make their mortgage payments.

Question 1: When a mortgagor has been approved for utilizing a Deed in Lieu of foreclosure, how much time does a mortgagee have to complete the Deed in Lieu?

Answer: A Deed in Lieu of foreclosure must be completed within 90 days of initiation of the process.

Question 2: Does HUD allow $2,000 to pay off second liens when determining if a mortgagor is eligible for a Deed in Lieu?

Answer: Yes, effective with Mortgagee Letter 2002-13, HUD increased the mortgagor's Deed in Lieu of foreclosure consideration to not exceed $2,000. The funds may be used to pay off junior liens or be paid to the mortgagor upon vacating the property.

Question 3: Can a mortgagee revert from a foreclosure process to the acceptance of a Deed in Lieu from a mortgagor?

Answer: This is a business decision the mortgagee is to decide based upon what is stated in the mortgagee's Quality Control Plan.

Question 4: Does a mortgagee have the ability to accept a Deed in Lieu of foreclosure when there is an existing Partial Claim?

Answer: Yes, Mortgagee Letter 2000-05, page 37, paragraph E. Condition of Title, states, "Good and marketable title must be conveyed to the Secretary. The lender must complete a title search and may be required to secure release of junior liens and/or endorsements to the title policy. HUD will not accept title subject to most junior liens including IRS liens. However, HUD will allow liens securing repayment of Section 235 assistance payments, partial claim advances and Title I liens."

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