Can A Bank Refuse A Deed In Lieu Of Foreclosure?

You are facing foreclosure. You are not concerned with keeping your house. You want to stop or avoid foreclosure and simply give your home to your mortgage lender (this is called a deed in lieu of foreclosure), but your lender will not cooperate.

You question: "Can a bank refuse a deed in lieu of foreclosure?"

The simple and quick answer is yes. A bank or mortgage lender is not required to accept a deed in lieu of foreclosure.

There are two parts to a deed in lieu.

The first part is that your home must qualify. By this I mean that your home must be free of all other liens. There cannot be another mortgage, judgment lien, or delinquent taxes. All of these items are liens against you home. If you deeded your home to your bank or home lender and there are liens against it, your bank or mortgage lender would have to pay the liens before it could sell the home. In other words, by accepting a deed from you when there are liens on your home, your bank or mortgage lender would actually be taking on liabilities and it is not going to do that.

The second part is that your bank or mortgage lender has to agree to accept the deed from you. But your bank or home lender may not agree for several different reasons.

By accepting a deed in lieu of foreclosure, a bank or mortgage lender may be deemed to accept the home as a complete satisfaction of it's mortgage. If the amount owed on the mortgage is $150,000, but the home is only worth $140,000, then the bank would be losing money. Also, the bank or lender might lose it's right to a deficiency. To protect it's full mortgage, the bank or mortgage lender may refuse a deed in lieu.

When the loan amount is close to the value of the home, most home loans require private mortgage insurance to protect the bank or mortgage lender from losses if there is a foreclosure. It may be that to qualify for coverage of losses, the bank or home lender must foreclose. Without going through the foreclosure process, the bank or lender may not be able to recover its losses.

You cannot force a bank or lender to take an action (accept a deed in lieu) which is detrimental to it.

Finally, even if your home is worth more than the amount owed on your mortgage and there are not any liens against your home, a bank or mortgage lender can simply refuse to accept a deed in lieu of foreclosure. We cannot legally force anyone (such as a bank or home lender) to accept a gift. The person receiving the gift must agree to the gift.

This article is general information. For specific advice, talk with a lawyer licensed in your state.

Stop! Don't blindly chase any option to stop foreclosure. See stop foreclosure options to learn what options you have in your situation. Remember, what works in one person's situation, may or may not work in your situation to stop, avoid, and prevent foreclosure. For more general information, see Stop Foreclosure - Five Options You Need To Know.

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