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WALLSTREETESQ
WALLSTREETESQ, Attorney
Category: Bankruptcy Law
Satisfied Customers: 17080
Experience:  14 years exp., CH 7 AND 13 Bankruptcy cases, AFL-CIO UNION PLUS, UFT NYSID AND ALL MAJOR UNIONS
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Deed in lieu of foreclosure is said to offer some protection in case the seller is bankrup

Resolved Question:

Deed in lieu of foreclosure is said to offer some protection in case the seller is bankrupt.

What is the protection and does this protection change in a quitclaim deed?
Submitted: 4 years ago via RocketLawyer.
Category: Bankruptcy Law
Expert:  WALLSTREETESQ replied 4 years ago.

WALLSTREETESQ :

Hello I am a licensed attorney here to help you with your question, please review my response and do not hesitate to ask for clarificati on

WALLSTREETESQ :

A deed in lieu is when the owner deeds over the property to the mortgage lender.

WALLSTREETESQ :

So the mortgage lender becomes the titled owner of the property

WALLSTREETESQ :

The mortgage lender in this case will not sue the previous owner as they now have the deed

WALLSTREETESQ :

It is the same if this was done through a quit claim, their is no difference,

WALLSTREETESQ :

When you quit claim a deed you just transfer the name on the deed to another person,

Customer:


Deed in lieu of foreclosure is said on this webpage to offer some "additional" protection for the holder of the mortgage to which the property is transferred. In case the seller files for bankruptcy after the transfer, does this mean that the bankruptcy court cannot declare the transfer invalid and add the property to the original owner of the property to increase the available assets for distribution to other banks?

WALLSTREETESQ :

A deed in lieu is a transfer of the title in order to avoid a foreclosure,

WALLSTREETESQ :

if the seller files a bankruptcy the property no longer is in their name, so in bankruptcy

WALLSTREETESQ :

the trustee would not consider it their asset

Customer:

I asked this question because I was told that the bankruptcy court loks for the transaction within the last one or two years and may decide they were invalid. So I take your answer as saying if I transfer property to somebody in lieu of payment the transfer cannot be declared as invalid, because the seller went into bankruptcy. Is this correct?

WALLSTREETESQ :

Who is on the deed now?

WALLSTREETESQ :

Are you giving the property to the lender?

Customer:

yes

WALLSTREETESQ :

If the lender is getting the deed,

WALLSTREETESQ :

the bankruptcy court would not count it as your asset,

WALLSTREETESQ :

unless their was some equity that you may have had, that you gave up

WALLSTREETESQ :

the reason is that the secured party which is the lender is getting the house, their would be no fraud,

WALLSTREETESQ :

If you deeded the property to a friend or relative, than the trustee would void the transfer, as it would be a fraud

Customer:

This is what I am referring to(copied): Deed in lieu of foreclosure:With a deed in lieu of foreclosure, the property owner deeds the property to the lender in exchange for the lender canceling the mortgage loan. This was a popular option back when homes in foreclosure generally had positive equity; the lender could sell the home and keep the profit. In today's housing market, fewer and fewer lenders will accept a deed in lieu. However, because a deed in lieu reduces the time and cost of repossession and offers protections in the event that the borrower files for bankruptcy, many lenders are still interested in this solution.

WALLSTREETESQ :

That is true,

WALLSTREETESQ :

The lender is protected when the original homeowner files bankruptcy,

WALLSTREETESQ :

as the automatic stay of the bankruptcy filing does not stop the lender from selling the property, as it is theirs through the deed transfer

Customer:

That is what I wanted to Know . Thank you!

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