Will lender accept a deed in lieu with a lien on the property?

[duffgirl]

Hello, thank you to everyone who contributes advice, I so appreciate it.

We are in the middle of a Ch 13 situation and they have petitioned to lift the stay so that they can foreclose. We have been trying to sell our home for 8 months now, 2 months ago we dropped the price below what we owe and attempted a short sale but the lender dragged their feet getting back to us and three weeks later the buyers backed out.

We cannot afford the home as our income has dramatically dropped. We moved to find work so we are renting cheaply.

Anyhow, my question is, on a $250K mortgage, it has been suggested to us to attempt a deed in lieu of foreclosure. We just found out that we have a mechanic's lien on our property of $3500. We have been making payments of $50 a month, but when they drove by and saw that we had moved, they panicked and put a lien on the house to "secure their assets". I don't blame them, except we have no way of getting them the $3500 upfront to take the lien off, and we cannot sell the house since it now has a lien on it.

QUESTION: Will a lien of $3500 affect the lender considering a deed in lieu of foreclosure? We want to be responsible and do the best thing in a bad situation.

[B12]

First of all, check to see if the mechanic's lien was filed properly.

You say you have been paying them regularly, then they put the lien on your house.

There are certain time frames and guidelines in filing. I think the filing time is within 90 days of completed services. I also think there is a problem with filing a mechanic's lien with a person in BK.

I haven't dealt with mechanic's liens in some time, but do check with your lawyer and see if the lien is valid before you do anything. You might be able to remove it.

[lrprn]

Anyhow, my question is, on a $250K mortgage, it has been suggested to us to attempt a deed in lieu of foreclosure. We just found out that we have a mechanic's lien on our property of $3500. We have been making payments of $50 a month, but when they drove by and saw that we had moved, they panicked and put a lien on the house to "secure their assets".

Can you give us a timeline on what happened when? Did a company who did improvement work on your house file the mechanic's lien? When did your lender file to lift your stay? I'm trying to figure out who filed what and when.

QUESTION: Will a lien of $3500 affect the lender considering a deed in lieu of foreclosure? We want to be responsible and do the best thing in a bad situation.

Well, if you can ever sell the house, then the new owner will be responsible for paying the $3,500 anyway.

If your incomes have dropped permanently and even with renting things are still very tight financially, have you considered talking with your attorney about filing an amended Ch 13 plan?

[SinkingFast]

Generally speaking,............ In a Foreclosure situation, the winning bidder becomes responsible for back due taxes, needed repairs, and in this case, the Mechanic's Lien anyway.

I'm not sure a Mechanic's Lien would stop a Short Sale. If the Lender Forecloses and Auctions to the highest bidder,........ Chances are the Lender will wind up with the house. Individuals rarely purchase Foreclosures. Investors occasionally buy Foreclosures. Most times, the Lender winds up with the house at Sale.

The deal with Deed In Lieu or Short Sale is you can offer, but the Lender has to agree to accept. Lenders rarely accept either a DIL or a Short Sale.

When you wanna do a DIL or a Short Sale, it's like applying for the Loan all over again in reverse. The Lender wants to know your income and expenses. They look at your over all situation and consider the Buyer's offer to decide. If they think it's a sound deal and they won't do better selling after Foreclosure, they'll accept/grant the DIL or Short Sale.

And it takes time to get an answer from a Lender on a DIL or Short Sale. Most times, you're dealing with a loan servicer who works on behalf of an Investor. Even tho your borrowed your money from CountryWide or XYZ Mortgage,............. Fannie Mae, Freddie Mac, FHA, BoA, Citi, etc, could be backing your mortgage. So your Lender, aka Mortgage Servicer, gathers the information, puts together a package with the DIL or Short Sale offer, and forwards it to the Investor backing your note. The Investor makes the decision to accept or reject. That's why you waited weeks with no response.

[emoney]

Again make sure that the lien was legally proper. In Texas if you file a lien that is not legally correct you face a $10,000 fine + a Class A Misdeamenor which is up to one year in jail.
regards,
emoney

[HHM]

Generally speaking,............ In a Foreclosure situation, the winning bidder becomes responsible for back due taxes, needed repairs, and in this case, the Mechanic's Lien anyway.

Strictly speaking, that is not exactly how it works; if the bank that holds the first mortgage forecloses on property, any inferior liens are extinguished (that is the risk taken by 2nd mortgages etc) at the time of auction. Whether a mechanics lien is superior or inferior to the 1st mortgage is a question of state law. Generally speaking, the only liens that are superior are IRS tax liens and property tax liens. So, about the only thing the bank will pay is past due property tax. In the property tax scenario at auction, it is not so much that the buyer becomes responsible for the back property taxes, generally the bank will pay the past due property tax out of the proceeds of the winning bid (because the bank has to be able to pass clear title to the property).

In any event, none of this matters to the person being foreclosed upon. In the DIL scenario, (note you will have to check state law) but YES, if there are other liens on the property, the bank is unlikely to accept a DIL because doing a DIL does not legally extinguish inferior liens.

[B12]

Junior liens such as home equity, etc., fall into position of payment according to when the lien was recorded. The early bird get the worm.

As HHM stated, only property taxes take priority over other Junior liens, no matter when recording takes place. They have the right to redeem, but there is a time limit. I think it is 120 days. Although it rarely happens, Uncle Sam can also beat out other lien holders.

If the mechanic's lien is recorded after the first mortgage, then it takes a subordinate position to the mortgage.

There are situations when a mechanic's lien is recorded before the first mortgage. It involves constuction loans when the contractor beats the mortgage holder to recording. Then it becomes a battle with state law coming into play.

Again, please check the validity of the mechanic's lien as there are strict guidelines to file. You might be able to get rid of this problem all together.

[duffgirl]

Can you give us a timeline on what happened when? Did a company who did improvement work on your house file the mechanic's lien? When did your lender file to lift your stay? I'm trying to figure out who filed what and when.

Well, if you can ever sell the house, then the new owner will be responsible for paying the $3,500 anyway.

If your incomes have dropped permanently and even with renting things are still very tight financially, have you considered talking with your attorney about filing an amended Ch 13 plan?

We got a new AC unit put in early this year. We moved in April.

I am not sure exactly when the lien was put on the property, sometime between July and November.

This is a small AC business owned by a couple. This is the third time in about 8 years that we have had major work done. They have always been "pay us when you can" type people, no formal payment schedule being set up. We have always paid them every time.

So, how do I go about checking into the lien? How would I know that it had been done properly or not?

I am looking at getting a new attorney, my current one lives in 3 hours away in my old neighborhood and is terrible about returning phone calls. I keep getting letters from their office telling me to call, but there is never anyone to speak to and they DO NOT return phone calls.

[SinkingFast]

You'll really need to call the Court House to see what the procedure is for Mechanic's Liens. Different counties have different procedures.

When we were getting our last house ready to go on the market, a painter I was getting a bid from pointed out some rotten windows. So now I had to get bids for replacement windows to fix the situation.

One guy that had given me a written bid, called out of the blue about 3 weeks later. He said the windows were in and wanted to schedule a time to come do the install. I told him I'd never agreed to order the windows from him. That I'd even decided to go with a different contractor. He got mad and said he was gonna place a Mechanic's Lien on our property.

Great! Just what you want when you're trying to sell a house and need a clean Title. So I called the Court House to see if a Mechanic's Lien had been filed against our Deed.

Our County didn't work that way. Mechanic's Liens were filed in a different office at the Court House. A very informal procedure, really. Just a filing cabinet of index cards with the Contractor's name, the owner's name, and the property address, and what the Lien was for. Builders. Gravel delivery. Earth work. You name it. Whenever a Title Search was performed, the Mechanic's Lien would turn up then.

The public was allowed to look thru the files so Son and I went to the Court House and spent an afternoon looking thru Mechanic's Liens. We didn't find one on our property. When we finally did sell, our Title Search came up clean. So the guy musta been blowing smoke with his threat.

Check with the Court House to see how Mechanic's Liens are handled where your property is located.

[HHM]

Correct...most mechanics liens are filed with the County Recorders office.

However, most states have certain procedures and notice requirements that must be followed for the lien to be valid. If the mechanics lien is not valid, you can get penalties and your attorney's fee paid.

[duffgirl]

As per the housing counselor's advice, I called my lender back and requested to speak to someone in loss mitigation (previously, I was told that unless I paid the entire amount upfront, there was no negotiation).

I was told that since the stay has not been lifted and we are still under ch 13 protection, they will not discuss DIL or any other options with us.

Called attorney today, actually spoke with a person who took my info, and told me that they would need to get back with me. Still makes me nervous.

As of right now, that hearing has not been scheduled. So...now what do I do?

[lrprn]

Called attorney today, ... As of right now, that hearing has not been scheduled. So...now what do I do?

Wait for your lawyer to call you back to discuss your options. Since there's no hearing scheduled yet, there's nothing else for you to do at this point.