Alternative to Foreclosures Gaining Popularity

Short sales have grown popular with home owners who were struggling to make mortgage payments and lenders who were striving to avoid foreclosures. But recently another option is growing in favor with both parties that of deeds-in-lieu.

Many leading mortgage servicers and banks are getting ready with well thought out campaigns to target borrowers with financial sops ranging up to five figures and a simple message: Let’s avoid the time consuming process of short sales or foreclosures. Simply deed us the title to your home that is under water and we will strike a deal. A huge plus is that we will be able to close the deal in 35 to 45 days.

This has struck a chord with many borrowers. Lending institutions say number of troubled borrowers signing up for this process is increasing. Bank of America, one among the largest servicers has sent 100,000 solicitations for deeds-in-lieu to borrowers within the last 60 days and records are being made for number of completed transactions.

Deeds-in-lieu is short for deeds in lieu of foreclosures. They are voluntary transfer of ownership of property from borrowers to lenders by avoiding the process of foreclosures. It is an old concept but has gained currency now because Obama administration has included it as an option in Its Home Affordable Foreclosure Alternatives Program.

The popularity of deeds-in-lieu is surging because it benefits both borrowers and lenders unmatched by short sales. Travis Hamel Olsen, an expert in this field explains that deeds in lieu represent an expeditious way to move on for borrowers who are under water and headed for foreclosure.

He points out that lots of home owners want to finish a deal as quickly as possible. Lenders also don’t want to deal with rising inventory of foreclosure properties that are a burden on their bottom-line. For one thing, it is cheaper to do deeds in lieu to gain control over these properties. On the other hand with mortgage rates as low as 5%, they will be able to sell them faster and at more favorable terms.

Matt Vernon, a Bank of America executive, says that the process benefits both lenders and borrowers and the Bank is conducting pilot programs to spread awareness about deeds in lieu. In order to sweeten the deal, Bank of America is offering incentives worth $3000 to $15,000. It has got a strong response.

Defects of deeds in lieu? You don’t want it when you have equity in the property. Also doesn’t work when you have multiple mortgages from different lenders on the property.
Yet Deeds in lieu despite the short comings is an attractive alternative to foreclosures.