Deed in Lieu of Foreclosure vs. Short Sale in Florida
Both a deed in lieu of foreclosure and a short sale are foreclosure-avoidance options available under Florida state law. Both of these options are more the subject of negotiation with your mortgage lender than they are the subject of state regulation. In fact, Florida state law doesn't provide any meaningful regulation on short sales or deeds in lieu of foreclosure.
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No Legal Requirement
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Mortgage lenders in Florida are never required to accept a foreclosure avoidance alternative, such as a deed in lieu of foreclosure or a short sale. Similarly, borrowers can never be legally required to enter into either one of those arrangements. However, Florida law allows either arrangement, if the parties both want to agree to it.
Judicial Foreclosure
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A mortgage lender in Florida can foreclose in only one way, which is through a lawsuit called judicial foreclosure. Judicial mortgage foreclosure is a lawsuit filed with and heard before a Florida state court judge. The judge can order a sheriff's sale of the property, which is a public auction where the property is sold by the sheriff to the highest bidder.
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Short Sale Options
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Foreclosure can be an expensive process for mortgage lenders in Florida. Florida statutes require strict compliance with the noticing and procedural requirements, and meeting those requirements can be time consuming and expensive. A lawsuit for judicial foreclosure can result in large legal fees. Accordingly, lenders may be willing to accept a short sale instead of bearing the expense of foreclosure. A short sale results when the lender agrees to accept a reduced payment on the mortgage loan. This allows the home owner to sell the home for a price that is less than the amount otherwise due to the mortgage lender. The mortgage lender simply forgives the difference.
Deed in Lieu
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A deed in lieu of foreclosure is a voluntary transfer of title from the home owner to the mortgage lender in exchange for the mortgage lender forgiving the balance due on the mortgage loan. The lender takes title to the property and relinquishes its rights to collect the remaining balance from the home owner. Again, the primary motivation for a lender accepting a deed in lieu of foreclosure is to avoid the expense of holding a foreclosure sale. Florida state law allows mortgage lenders to accept a short sale or deed in lieu at any time before the foreclosure sale actually occurs.
Warning
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Florida law does not require lenders to forgive the unpaid balance on a short sale or a deed in lieu of foreclosure. This means that while a bank may agree to release its mortgage lien from your property, thus allowing you to sell or transfer the property, the bank may not fully release you from the obligation to repay the mortgage. Before agreeing to a deed in lieu of foreclosure or a short sale you should clarify in writing whether you will have to repay the "forgiven" balance on the mortgage. This is purely a matter of negotiation between you and the lender.
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References
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