Deed in Lieu of Foreclosure
(Residential) (NY)

Summary

This template deed in lieu of foreclosure may be used in New York to transfer title to residential real property from a defaulting borrower to the holder of its mortgage. This template contains practical guidance, drafting notes, and alternate clauses. This template should be used in conjunction with a New York deed in lieu agreement where the borrower agrees to convey the property to the mortgage holder using a form of warranty deed with covenant against grantor's acts. It should not be used in transactions involving commercial property, where the parties' agreement requires an alternate form of deed such as a quitclaim deed, or if the use of a deed in lieu is an inappropriate mitigation measure. In New York, if a borrower is unable to make payments of principal and interest on a loan securitized by real property, the borrower and lender may enter into a deed in lieu agreement whereby the borrower agrees to deed the property to the lender in lieu of going through the judicial foreclosure process. A deed in lieu transaction is only an appropriate mitigation measure where the expenses incurred in transferring by deed in lieu would save time and expense over a traditional judicial foreclosure and the lender believes any potential deficiency judgment would effectively have no current value, the borrower has no equity in the property, and where a title company will insure without preferential transfer, fraudulent conveyance, or equitable mortgage claim exceptions. A deed in lieu is also not appropriate if any rights are reserved in the borrower that might result in the deed in lieu being construed as an equitable mortgage. Typically, a deed in lieu is not an appropriate conveyance if the property has a subordinate mortgage. Often, but not always, the agreement will absolve the borrower of the loan obligations, including proceedings against the borrower for the remaining loan default amount. The agreement should identify the deed type to be granted (e.g., bargain and sale with covenants). A lender will negotiate to obtain the highest quality of title. A deed in lieu template must meet the standard deed requisites, including consideration. It must be in writing and set forth the grantor and grantee as well as their addresses. It must be signed by the grantor and acknowledged if being recorded. It would be atypical for a lender not to record the deed. Bergman on New York Mortgage Foreclosures § 25.02. For general information on deeds in lieu, see Bergman on New York Mortgage Foreclosures § 25.01 et seq. For information on mortgages generally, see 1 NY Practice Guide: Real Estate § 3.01. For information regarding the Home Equity Theft Prevention Act, see N.Y. Real Prop. Law § 265-a. For information regarding applicability of the Home Equity Theft Prevention Act to deeds in lieu, see Department of Financial Services guidance. For a template deed in lieu agreement, see Agreement to Deliver Deed in Lieu of Foreclosure (Residential) (NY). For a template title affidavit to accompany a deed in lieu, see Borrower's Title Affidavit (Deed in Lieu of Foreclosure) (Residential) (NY). For information about residential foreclosures, see Residential Purchase and Sale Transactions Resource Kit (NY).