Liable on Note after Deed in Lieu of Foreclosure

Posted by kevin on December 25, 2011 under Foreclosure Blog | Comments are off for this article

Last week, the Appellate Division came down with a case that may have some implications for borrowers.  There were two defendants which collateralized a business loan with New Jersey real estate.  They defaulted on the payment of the loan.  The bank sued on the note.  If it is not a residential first mortgage, the lender has the option to foreclose, sue on the note or do both at the same time.

Ultimately, the parties settled.  The settlement agreement was drafted by the lender and was very involved and in legalese.  In essence, the borrowers would give up two properties by deeds in lieu of foreclosure.  The lender gave one borrower a release and the other a $4,000 credit.  The collateral left a balance due in excess of the $4000.  So, the bank sued the one borrower for the difference.

The borrower screamed foul.  However, the detailed agreement did give the lender the right to come after the borrower even after the lender had his property.  The Court held for the lender and the borrower had to pay.

Now, this exact situation cannot happen on a first mortgage on your New Jersey residence.  However, it is instructive.  Why?  Well, after a missed payment but long before any foreclosure judgment, you will be bombarded by letters from the servicer saying that they want to make a deal so you can stay in your home.  Nothing wrong with that.  After the servicer has made you jump through a requisite number of hoops, you may get a modification that is lengthy and drafted by the servicer or lender.  Make sure you read that document very carefully.  You may be agreeing to things that were not part of your negotiations.  You may be giving up valuable rights like releasing the lender from any wrongdoing in the origination of the mortgage.

If you do not understand what was sent to you, have an attorney review it.  It will not cost much and is money well spent.

Merry Christmas to all!