Second mortgage usually prevents 'deed in lieu'

 
 
Posted8/11/2013 1:00 AM

Q. I want to do a deed in lieu of foreclosure with my mortgage company but I am told I cannot do this because I have an equity loan. Why is that?

A. A deed in lieu of foreclosure is an agreement between a borrower and a lender. The agreement is essentially the borrower will tender his interest in the property in exchange for the lender forgiving any mortgage indebtedness. This works for the lender because it is able to obtain quick possession of the property and then resell, thereby removing this nonperforming loan from its books. The lender obviously takes a hit on the deficiency, which is the amount realized from the sale of the property versus what was owed by the initial borrower.

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When the lender agrees to the deed in lieu, they have determined they are better off taking the hit rather than to proceed on the foreclosure case, which ties up the property for a long period of time. During this period, not only are no funds coming in to service the obligation, but the lender is incurring additional costs, such as real estate taxes and insurance. There are also potential issues with damage to the property resulting from vandalism, lack of maintenance or other issues.

The motivation for the lender to accept the deed in lieu is erased when there is a second mortgage lien on the property. In this situation, the lender cannot simply market and sell the property upon taking title. They must now deal with the second mortgagee, who now becomes a first mortgagee. This puts the second mortgagee in a far stronger position than they were prior to the deed in lieu. Deeds in lieu of foreclosure are seldom transacted when two or more mortgages are recorded against the title.

With two loans, you are better off attempting to effectuate a short sale. In this transaction, the second mortgagee realizes they are in a weak position and will, in most cases, take a nominal payoff to release their lien. The first mortgagee will generally receive a sizable (if not fully satisfied) payoff. An additional advantage for the seller is that short sales take longer to complete than deeds in lieu, which gives the seller more time to determine their next step.

Q. My uncle died a couple weeks ago. He was not married and had no children and his parents are deceased. He had one brother, my father, who is also deceased. I am my father's only child. I would see my uncle every now and then but we really did not have any kind of relationship.

                                                                                                                                                                                                                       
 

My uncle owned a home. What happens to it? I'm pretty sure it is paid off. How can I find out what if anything is owed and who would get the money when the house is sold? And, what if he had money in the bank or other assets? I am at a complete loss as to what to do.

A. I have an easy answer as to what to do. Locate a local attorney familiar with probate law and go speak to him or her.

I think I also have very good news for you. I think you own your uncle's house, and likely any other assets he owned. Presuming your uncle did not have a will or trust agreement, property passes pursuant to the state's intestacy statute. When one dies intestate, it means they died without a will.

The statute provides that when one dies without a will or other means to distribute property upon death, property passes first to spouses and children. If the decedent had no spouse or children, then property passes to siblings and parents or, here's the good part, to their descendants. You are a descendant of a sibling. Of course, this is all presuming there was no will or trust. If a will or trust agreement is discovered and it is executed properly, the will or trust will control the distribution of the estate.

You will probably be required to open an estate in the county where your uncle lived. Your attorney can provide further details.

• Send your questions to attorney Tom Resnick, 345 N. Quentin Road, Palatine, IL 60067, by email to tdr100@hotmail.com or call (847) 359-8983.

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