Description
When a mortgage is in default, a deed in lieu of foreclosure offers distinct advantages: the lender immediately becomes the owner of the property, allowing it to take immediate control of its operation, and the transaction can be quickly negotiated and completed, avoiding the time and expense of foreclosure. In exchange, the borrower and guarantor, when applicable, can negotiate a release of obligations under the loan with less impact on the borrower's credit rating and reputation in the industry.
Despite the benefits, there are potential disadvantages for a lender to consider. First, borrowers often challenge the deed after the fact by claiming that the deed was really a form of disguised mortgage. Second, unlike a foreclosure, a deed in lieu does not eliminate any junior liens against the property.
As appealing as a deed in lieu of foreclosure may be to a borrower, the borrower is also immediately dispossessed of the property. Also, despite being a viable and sometimes advantageous remedy, a borrower cannot force a lender to accept a deed in lieu and title to the property, leaving the lender to continue with its foreclosure and receiving the cash flow from the property.
The typical deed in lieu agreement will obligate the borrower to deliver a deed in lieu (along with an assignment of leases and contracts, rents and security deposits, a bill of sale, customary organizational documents, and legal opinions)--most often in exchange for a release of liability of the borrower and any guarantor or indemnitor. Ideally, for the borrower, the lender will also agree to execute and deliver at closing a covenant not to sue the borrower or any guarantors in connection with the loan, provided that the borrower complies with the deed in lieu agreement. Lenders will also want to include appropriate release language to avoid potential liabilities associated with the property, and a non-merger clause to permit the lender to later foreclose subordinate liens if necessary.
Listen as our authoritative panel discusses the advantages, disadvantages, and common pitfalls of deeds in lieu. The panel will also provide tips on the key issues that must be addressed in a deed in lieu agreement.
Presented By
Mr. Bergman has nearly two decades of experience in the real estate/title insurance industry. Prior to joining Benchmark, He was a Vice President and Underwriting Counsel for one of the nation’s largest title agencies. Before that, Mr. Bergman was title insurance underwriting counsel for First American Title Insurance Company in New York, and previously served as claims counsel for First American Title Insurance Company and Fidelity National Title Group. He is a three-term Chair of the New York State Land Title Association’s Law Committee, is Vice-Chair of the American Bar Association Real Estate, Condemnation, and Trust Litigation Committee’s Title Insurance subcommittee, and Co-Chair of its Mortgage and Foreclosure subcommittee.
Mr. Hart has more than 30 years of experience representing banks, other lenders and borrowers in a wide range of asset-based and real estate secured loans. He represents construction, bridge and permanent lenders, life insurance companies, reinsurance companies, CMBS conduit lenders, local and institutional developers, owners and investors in connection with all aspects of commercial finance and workouts. Mr. Hart has substantial experience with balance-sheet lenders and CMBS/conduit lenders on all commercial property asset types, including office, retail, multi-family and resort.
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This 90-minute webinar is eligible in most states for 1.5 CLE credits.
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Date + Time
- event
Tuesday, September 10, 2024
- schedule
1:00 p.m. ET./10:00 a.m. PT
- Advantages of a deed in lieu
- Disadvantages of a deed in lieu
- Lender concerns
- Assessing environmental issues, delinquent taxes, judgments and other liens and encumbrances
- Subordinate liens are not wiped out: non-merger and other title endorsements
- Mezzanine and junior lenders: intercreditor agreements
- Borrower concerns
- Continuing liability after the conveyance
- Liability to other lenders and creditors
- Early steps for borrower and lender
- Negotiating the key terms of the deed in lieu agreement
- Bankruptcy issues
- Tax issues and implications
The panel will review these and other critical issues:
- What are the advantages and disadvantages of a deed in lieu from both the lender's and borrower's perspective?
- How can a lender retain the right to foreclose junior lienholders after taking a deed in lieu?
- What are the key provisions that should be included in a deed in lieu agreement?
- How do intercreditor and mezzanine financing arrangements impact a deed in lieu agreement?
- What are the tax implications of a deed in lieu?
- What are the bankruptcy concerns that a deed in lieu may trigger?
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