People lacking experience in real estate in particular, or business in general, are typically SHOCKED to learn exactly how slow, costly and aggravating taking “legal” action against someone who clearly violated a contract, can be.

One very common misconceptions amongst some of our new investors in our loan syndications is that is someone misses a payment we just “take the property”. While it may end up that way, it can take as long as three years (state dependent) or even LONGER (bankruptcy). Further, the expense of going thru foreclosure with a determined debtor who will file multiple bankruptcies, go thru multiple attorneys, lie, create false documents, etc. has reached well over $100,000 for us. And while “theoretically” all those legal fees are charged to the seller, most often the seller has no other obtainable assets to go after. The subject property itself may have, after 3 years or more, much deferred maintenance, property taxes in default, insurance payments we covered, etc. and we’re often lucky to escape at break even.

As a result we find it much to our advantage to try to secure a “deed in lieu” from the borrower. This puts the ownership in our name, and the entire foreclosure process can be eliminated. However, there are two major problems with a deed in lieu. First, if subsequent to our lien the borrower incurred additions liens or judgements, they would only be eliminated by a completed foreclosure. Second, a borrower who want to or believes it’s to his benefit to keep ownership of the property, must be properly incentivized to sign the deed.

What we’ve found that works is when a borrower defaults but believes with that he can make payments going forward, or that some event allowing him to pay us off will occur, we will offer to allow the borrower TIME during which we won’t initiate foreclosure. This is usually 3 - 6 months, and we require the borrower execute a deed granting us the property which is held in escrow not to be recorded unless the borrower fails to perform as he promised. Through the years we probably used deed in lieu more than a dozen times, and in all cases the outcome was substantially better than if we foreclosed.