Fisher Law Corporation’s Frequently Asked Questions

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Notice: The information contained in these articles is designed to provide accurate information in regard to the subject matters covered and is made available with the understanding that the information provided does not constitute the rendering of legal or professional services. All information is of a general nature, is specific to California law only, and is not intended to to replace professional or legal advice. Each person’s situation is unique and the information contained herein cannot be applied to any individual’s situation. If legal advise is required, the services of a professional should be sought.

What is an all-inclusive deed of trust? »

What is CERCLA? »

How does a condominium differ from a house? »

What are Covenants that run with the land? »

What is a deed in lieu of foreclosure? »

What are easements? »

What are Encroachments? »

How does escrow work? »

What is fire and flood insurance? »

How do foreclosures work? »

What are the different forms of doing business? »

What do trade terms mean? »

What are liquidated damages in real property contracts? »

What is a Lis Pendens? »

How do loan modifications work? »

What is a Mechanic’s Lien? »

How does a Multiple Listing Service work? »

What is an off-shore trust? »

How do real property taxes work? »

What is Procuring Cause? »

What is a Quitclaim Deed? »

What is RESPA? »

Who bears the risk of loss during escrow? »

What are second deeds of trust? »

What is the Statute of Frauds? »

What is Statute of Limitations on Debts Secured By a Mortgage? »

Does a buyer’s broker have a duty to inspect? »

What is The Parol Evidence Rule? »

What is Adverse Possession? »


Q. What is a deed in lieu of foreclosure?

A. It is not uncommon for the trustor to convey the premises to the beneficiary by a “deed in lieu of foreclosure” to avoid the foreclosure. The beneficiary saves the costs of foreclosure, and the trustor avoids having a notice of default recorded against his name. The major disadvantage to the beneficiary from accepting the deed in lieu of foreclosure is that he receives the title from the grantor instead of by foreclosure. When the beneficiary of a senior lien forecloses, he receives his title free and clear of junior liens; the junior liens are eliminated upon the foreclosure of a senior lien. However, when the beneficiary accepts a deed from the trustor in lieu of foreclosure, he is a successor of the grantor, and his title may be subject to the junior liens if there is a merger of the senior lien. Therefore, the deed in lieu of foreclosure should be accepted only on condition that a policy of title insurance is issued which will place title in the beneficiary free and clear of any junior liens.

A deed in lieu of foreclosure is a valid conveyance of real property unless it is made at the same time the original loan documents are executed or unless it is intended by the parties as a mortgage or other “hidden” security device. An agreement entered into at the time the trust deed is executed which waives or restricts the right of redemption or which compels the trustor to reconvey on default, without the necessity of foreclosure, is void. However, the trustor and beneficiary can enter into such an agreement by a separate and distinct transaction, supported by fair and adequate consideration, after the trust deed or mortgage has been executed.

Generally, the consideration given for a deed in lieu of foreclosure is the cancellation of the secured debt, but cancellation of the debt is not the only consideration that will be adequate. What is adequate consideration depends on the facts and circumstances of each case; therefore, a deed in lieu of foreclosure does not necessarily cancel the secured debt. If a person alleges that a deed in lieu of foreclosure is in fact a mortgage, he has the burden of proof to establish that it was not a conveyance of title. If a lender wishes to accept a deed in lieu of foreclosure and avoid cancellation of the debt, there should be a clear agreement between the debtor and the lender to that effect, together with an agreement regarding the balance of the debt that will remain unsatisfied.

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