Under the Foreclosure Alternative Program (FAP) announced last week by the Obama Administration, someborrowers may be eligible for the U.S. Treasury Dept.’s deed-in-lieu program, also referred to as “cash for keys.”
A deed-in-lieu of foreclosure is an option offered to homeowners who are not eligible for a mortgage modification or a short sale. In most cases, banks acquire properties back from delinquent borrowers who can no longer afford to make payments. The bank also agrees to write off the debt. In exchange, the homeowner receives a small incentive, typically about $1,000, if they vacate the property by a set date and the home is not vandalized. Those who would benefit most are borrowers who likely would not be able to repay their mortgages under any reasonable modification program. These would include delinquent borrowers who are underwater, borrowers who have lost their jobs with little hope of finding another, and may include those who have gone through a divorce or another life-changing event.
There also are obstacles to overcome when dealing with deeds-in-lieu. The least complicated scenario is a borrower with no other debt on the home. However, if there is a second mortgage, the lender most likely will not agree to a deed-in-lieu unless it receives the full cooperation of the holder of the second mortgage.
As part of the FAP, the Treasury Dept. also will make incentive payments to second mortgage holders, up to $1,000, if the second mortgage holder relinquishes all claims to the property.