Anti-Deficiency California in Lieu Statute on Deeds
Deed in Lieu of Foreclosure alternative to foreclosure
One alternative for homeowners unable to afford their mortgages is doing a deed in lieu of foreclosure (DIL). Its general anti-deficiency characteristics are amongst a few benefits to a DIL. and although they are not obligated to, California mortgage lenders accepting DILs often waive any rights to pursue their borrowers for future deficiency liabilities.
Lenders who foreclose on properties without using the courts to do so are typically prohibited from pursuing borrowers for future liabilities in California. Recently passed law in California also prevents lenders accepting short sales from pursuing borrowers for future liabilities that result from those short sales. California deed in lieu of foreclosure laws are similar to other states’ DIL laws. Generally, lenders accepting DILs in California choose to waive their rights to pursue borrowers for financial liabilities and California law presumes that lenders that accept deeds in lieu of foreclosure will release their borrowers from future financial liabilities.
Contact lender for a DIL if you can’t afford your mortgage
Lenders usually require borrowers that offer a DIL to first attempt to sell their homes. And mortgages in California not containing a “no deficiency” provision are still subject to deficiency judgments after foreclosure, whether it’s a short sale or DIL. A deficiency in a mortgage is the negative difference between what a property is worth and what is owed on it.
Often lenders in California are hesitant to accept a DIL. Andif there are second mortgages or other security interest liens on the property that aren’t theirs lenders usually won’t approve DIL offers. Only about 5 percent of lenders in California currently pursue borrowers for deficiency liabilities after a DIL. Foreclosure should be a last option, utilized only if all other options have been closed off because of damage caused to the borrower’s credit after such an event.
If you are considering a DIL it is important to contact your lender or an experienced real estate attorney, or both. You should make sure you get any lender waiver of future deficiency liabilities in writing if the lender agrees to accept your DIL offer. Try to do a short sale if a lender accepts your DIL but won’t waive future deficiency liability pursuit. Bankruptcy can discharge debt related to deficiency liabilities arising from DILs, but it should be considered a last resort.