Hello!

I'm just trying to understand this...

I've heard a couple of stories regarding an investor loaning a dear friend cash to buy a distressed property including rehab funds. The investors friend; the borrower, cash in hand then dealt a deed in lieu of foreclosure through an attorney with the seller. The borrower was not only able to pay his friend the investor back right away, but take out a HELOC as the deal was not public therefore the lender saw him as having full equity.

I'm missing some important pieces to the puzzle so please help me out!

I'm trying to figure out how the borrower was able to pay his friend the investor back upon completion of the rehab. He didn't sell it either. Or flip it I should say.

You have a basic misunderstanding.. A DIL is when the borrower/owner Deeds the property to their Lender, verses paying the debt, in Lieu of foreclosure.  I have no idea what your friend is doing, but it's not a DIL, and whatever debt is on the property has to be paid.

That's what I thought thank you!

A DIL a lender will not usually take back if there are a bunch of other liens after them on a property.

If there was still sufficient equity maybe but the property is usually under water.

So in those cases the lender usually just forecloses and wipes out all of the junior liens for the property.

Things like property taxes and IRS tax liens can supersede a senior mortgage lien and not be wiped out in foreclosure. So it's important to weigh what liens are against a property.