Deeds in Lieu of Foreclosure
If the deed to the seller or proposed insured is a deed in lieu of foreclosure, you must determine that the deed is absolute (not a mortgage or additional security), with no rights or possession retained by the grantor. The mortgage also must be released or excepted.
Deed in Lieu of Foreclosure
As to the deed in lieu of foreclosure (the "Deed in Lieu") in connection with the mortgage or Deed of Trust recorded __________, the Company requires:
(a) Satisfactory evidence that the Deed in Lieu is an absolute conveyance given freely and under no duress or coercion;
(b) Satisfactory evidence that the grantor/mortgagor is no longer in possession of the Land;
(c) Satisfactory evidence that that the grantor/mortgagor and all guarantors have been released from personal liability on the debt.
(d) Execution of a Deed in Lieu of Foreclosure Affidavit and Estoppel Certificate, in addition to a customary seller's/owner's affidavit.
(e) Receipt by the Company of all agreements between the grantor/mortgagor and the grantee/mortgagee relating to the Deed in Lieu transaction;
Upon receipt thereof, the Company may make additional requirements or exceptions.
Comment: If the deed to the proposed insured is a deed in lieu of foreclosure, you must determine that the deed is absolute (not a mortgage or additional security), with no right to redeem or possession retained by the grantor. A deed in lieu of foreclosure does not extinguish any liens or encumbrances affecting the Land. All mortgages (including the first mortgage and all junior mortgages) and other liens and encumbrances (including taxes and homeowner's/condominium association dues) must be released of record or excepted.
Review all agreements between the grantor/mortgagor and the grantee/mortgagee relating to the deed in lieu of foreclosure. If any agreement includes any possible right or obligation of the grantor/mortgagor to redeem or reacquire the property or of either party to rescind the transaction, you must except to the terms and conditions of such agreement, whether or not it is recorded in the Public Records. If the deed in lieu of foreclosure contains any conditional language, consult our underwriting personnel.
You should obtain a Deed in Lieu of Foreclosure Affidavit and Estoppel Certificate in addition to your standard seller's/owners affidavit. For existing 1 - 4 family residential dwellings, issuing offices may underwrite the removal of standard exceptions and the provision of endorsements (if requested) consistent with customary practices for owner's policies. For commercial properties or deeds in lieu involving construction loans (residential or commercial), consult our underwriting personnel.
Note: You may add additional local requirements. Please consult with our underwriting personnel in preparing appropriate provisions.
The above requirements apply to a current deed in lieu of foreclosure transaction. If your search discloses a deed in lieu of foreclosure recorded in the chain of title during the preceding 90 days, contact our underwriting personnel.
Recharacterization of DIL as Equitable Mortgage
Any claim that the Deed from _______________ to ________________ recorded _______________ is part of a loan transaction or that the Deed constitutes a mortgage or other security device.
Comment: A deed in lieu of foreclosure may be recharacterized as an equitable mortgage in some cases. Issues to be considered include any right or option of the grantor/mortgagor to repurchase, retention of possession by the grantor/mortgagor, failure to release the grantor/mortgagor from all personal liability for the debt, and/or right of the grantor/mortgagor to share in sale proceeds.
Whether or not this exception appears in the policy, the title insurance policy does not insure against a claim of re-characterization of a deed as an equitable mortgage. Such claim would be excluded from coverage.