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If "Foreclosure Alternatives: Deed in Lieu Agreement, Agreement in Lieu of Foreclosure, or Settleme Agre" is not shown property. Visit the source link above.
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Foreclosure Alternatives
By
David Meyer
We have all read about the increased level of
foreclosure activity among ethanol producers across the country.
However, foreclosure is not the only option for producers who have
fallen on hard times. One of the less-frequently discussed
alternatives consists of transactions wherein borrowers voluntarily
transfer title to their property to their lenders by deed.
These voluntary conveyances are commonly referred to as “deed in
lieu” transactions.
Benefits of a
Deed in Lieu Agreement
When a borrower defaults on its obligations to a lender, the lender
often ends up foreclosing on the property that secures the loan.
Because the foreclosure process can be time consuming and
expensive, it may make sense for a lender to accept a deed from the
borrower in lieu of foreclosure as satisfaction of the debt. If a
lender is willing to accept a deed in lieu of foreclosure, the
lender takes title to the property immediately and eliminates the
redemption period. By gaining immediate control of the property,
the lender can direct its operation, obtain all of its income (if
any) and put the property on the market much more quickly. If
tenants are operating businesses out of the property, an orderly
transfer of title may maintain the value of those tenancies and the
businesses. Another advantage to the lender is avoiding the risks
associated with litigation. |
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There are a number
of reasons why a borrower may be willing to convey title by deed in
lieu of foreclosure including to avoid the cost and stress involved
in a foreclosure action or to avoid the negative publicity that may
be associated with foreclosure. One of the primary reasons a
borrower may give a deed, however, is to avoid a personal judgment
against the borrower. In exchange for the deed, a lender will
generally agree to release the borrower from any further
obligations under the mortgage or deed of trust and other loan
documents. Similarly, if the loan was guaranteed, a lender may
agree to release the guarantor from any further liability under his
or her guaranty.
Typical
Provisions in a Deed in Lieu Agreement
The actual contract that is executed by the parties is referred to
by many different names, including a Deed in Lieu Agreement, an
Agreement in Lieu of Foreclosure, or a Settlement Agreement. It is
important to note that there is no standard form of Deed in Lieu
Agreement. The substance of the agreement will depend on the
specific type of property being conveyed and the relative
bargaining strength of each of the parties.
Lenders generally approach a deed in lieu transaction much like any
other purchaser of real estate, including conducting the
appropriate due diligence, which may include, for example, title
review, environmental testing, surveys, and confirmation of
compliance with local zoning ordinances. If the property is
improved, the lender may require that the borrower convey not only
the real estate, but also any equipment, fixtures and other
personal property that is used in the operation or maintenance of
the real property. Similarly, if any portion of the property is
leased, a lender may require that the leases be assigned to the
lender at closing on the deed in lieu transaction.
While it may initially seem that a deed in lieu transaction is a
relatively simple process for a willing borrower and lender to
transfer title to property to avoid a foreclosure, there are risks
associated with the transaction that must be carefully assessed by
both parties. Also, because there is no standard form of agreement,
it is important for borrowers and lenders to consult with their
attorneys and other advisors when considering entering a Deed in
Lieu Agreement. |
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David Meyer is a partner in Lindquist & Vennum’s
Real Estate practice. He can be reached at dameyer@lindquist.com or (612)
371-3531. |
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