Q: My husband, daughter and I live in the State of Georgia. We have a 2-story home that is “underwater,” but we are current on our payments. Our daughter is disabled and cannot walk. As she is getting older she is unable to go up and down the stairs in the home. We must move for her sake and safety.
If we purchase another home that is more suited for her medical needs, then go to the lender on the home we currently own, can we do a “Deed in Lieu of Foreclosure?” Will the lender be able to put a “Lien” on our new home or later be able to garnish our paychecks? We are in a pickle and really need help.
A: Before answering your question, let’s talk about the process involved in working with a lender towards a deed in lieu of foreclosure. A deed in lieu of foreclosure is basically your agreement to give the title to your home to the lender and in exchange the lender doesn’t have to go through the process of foreclosing on the home to get the title.
Usually, a lender doesn’t have the right to foreclose on a home unless the borrower under the home mortgage has stopped making payments. In some states, particularly Georgia, the process of getting title to a home after a failure of the borrower to make loan payments can be rather quick. In other states, the process can take many months and in some cases even years.
If your lender forecloses on your home, the lender then can sell the home to satisfy the debt that you owe the lender. The lender uses the proceeds from that sale to pay the loan off in full and if there is money left over, you would receive the balance of the funds.
These days there typically isn’t any money left over after a foreclosure. Rather, the opposite is true: the lender sells the home and there isn’t enough money to pay off the loan. In this second situation, the sale at a loss to the bank creates a deficiency. In some states the lender can sue the borrower to recover that deficiency.
When a lender sues a borrower for the deficiency, the lender obtains a deficiency judgment against the borrower. With that judgment against the borrower, the lender can then pursue the borrower to get anything it can get. In some cases, the lender might find that the borrower has other assets and can place a lien on those assets. In other cases, if the borrower has a job the lender can obtain a garnishment order and get paid on a monthly basis for the amount still owed on the debt.
Rules differ from state to state on deficiency judgments and the manner in which they may be collected. You may want to discuss this issue with an attorney located in your state.
Finally, if you buy another home and get a mortgage on that home, you will find yourself owning two homes until the home you want to get rid of is sold or taken over by the bank. The bank does not have to agree to a deed in lieu of foreclosure. The bank does not have to accept a short sale, should you find a borrower willing to pay less on the home than what it’s worth. The bank has the right to determine what course of action it wishes to take should you stop paying the mortgage on that home and then can decide whether to work with you on a deed in lieu of foreclosure.
But keep in mind that the bank will want to know what you have in assets. If the bank feels you can afford the payment on the mortgage or have the assets to pay the loan off, the lender might require you to come up with money to pay off the loan. Otherwise, the lender can take the property over and still try to get the balance that is owed on the loan from you, but only in states that allow deficiency judgments.