The Deed in Lieu of Foreclosure (DIL) is the second Disposition Option in which a Borrower voluntarily deeds their collateral property in exchange for a release from all obligations under the mortgage. A DIL of Foreclosure may not be accepted from Borrowers who can financially afford their mortgage payments.
Question 1: Does HUD allow the mortgagor to use their $2,000 incentive fee to pay off junior liens when qualifying for a DIL?
Answer: Yes, the mortgagor's DIL of foreclosure consideration is not to exceed $2,000. The funds may be used to pay off junior liens or may be paid to the mortgagor upon vacating the property. See ML 2002-13.
Question 2: Can the mortgagee accept a DIL of foreclosure when there is an existing Partial Claim?
Answer: Yes, HUD will accept title subject to liens securing repayment of Section 235 assistance payments, Partial Claim advances, and Title I liens. See ML 2000-05.