Should I agree to a promissory note with a deed in lieu versus foreclosure regarding an investment property?

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Should I agree to a promissory note with a deed in lieu versus foreclosure regarding an investment property?

I have a rental condo wherein my tenant failed to pay rent for 6 months, so I got behind on the mortgage payments. I had the property listed for 6 months for a short sale but was unable to sell. I owe $129,000 on the mortgage but the appraised value is $61,000, for a difference of $68,000. The mortgage co offered me a deed in lieu. It would be approved if I agree to pay the mortgage insurance company $10,000 and Fannie Mae $17,500, for a total of $188 a month for 15 years with no interest. Should I agree to the deed in lieu or let it foreclose?

Asked on May 16, 2011 under Real Estate Law, Maryland

Answers:

M.D., Member, California and New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

First of all, you will have to make the financial decision yourself. That's not something a lawyer can do for you. However, I can tell you the law. In MD, a lender can obtain what is known as a "deficiency judgement". This is a judgment that may be obtained when a property in foreclosure is sold at a public sale for less than the loan amount (plus fees/expenses) which the underlying mortgage secures. This means that the borrower still owes the lender for the difference between what the property sold for at auction and the amount of the original loan.  In your case that would be at least $68,000 (most probably more). If your lender pursues such a judgement (and it most likely will) your non-exempt assets will be at risk.

So based on the deal offered to you under the died-in-lieu option, you would "only" be out-of-pocket a total of $27,500. And even then, you could make payments instead of owing a lump sum.

However, without knowing all of the specifics of your situation it's hard to say just what you should consider. Possibly bankruptcy is a viable option for you, perhaps not.  At this point, consult with a bankruptcy or real estate attorney directly.  They can review the details of your case and can advise further.


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