Deed in Lieu of Foreclosure and HAFA
Someone asked me today why I didn’t mention anything about the Deed In Lieu of Foreclosures (or simply Deed in Lieu) portion of HAFA (Home Affordable Foreclosure Alternatives) in my previous post. The answer is simple: because of the requirement to be free of liens.
A Deed in Lieu simply means you are telling the bank that you can no longer afford to keep up with the mortgage payments, so you offer to turn over your deed to the lender in exchange for you getting out from underneath the note. If you can find a lender who agrees to this, that may be a quick way out of the impending foreclosure mess, but the hitch is that the property must free free of liens. Free from liens means you cannot have a second loan against the property or have any other liens like unpaid property taxes or unpaid HOA dues. A big problem for most distressed homeowners.
In expensive California (and more specifically here in Silicon Valley), a majority of homes are purchased utilizing a combination of first and second loans. Many people who could not afford to come up with the 20% down payment, financed the down payment with a second loan. The vast majority of people who are in distressed situations now are those who have both first and second loans. But to add insult to injury, once people are unable to pay their mortgages, they are often also equally unable to keep current on their property taxes or HOA dues.
So for most of Californians, when we talk of HAFA, we really are talking only about a Short Sale because it is the only viable option with no restrictions against having liens on properties.
