Bank of America has announced that it is rolling out a test program in three states (including New York) in which the bank will accept a deed-in-lieu of foreclosure from homeowners in foreclosure and then rent the properties back to the homeowners for an unspecified period of time.
For those homeowners who have tried to modify, have been unable to do so, and remain too stubborn to file for bankruptcy, this may be an option – but it may come with strings attached.
First, BOA has not discussed anything about the tax consequences of the transaction. Even if a homeowner “surrenders” a property bank to a lender, the lender still has the right to issue a 1099C for that portion of the mortgage debt that it deems that it will be “forgiving.” Without having previously been discharged of the debt in bankruptcy, this could have crippling tax consequences – perhaps as high as $25,000-$50,000!!!
Second, BOA can only take a deed-in-lieu of foreclosure if there are no other liens on the property, including, but not limited to, second mortgages, home equity lines of credit (HELOCs) and judgment liens resulting from other, non-mortgage debt. The purpose of a deed-in-lieu is to save the bank the aggravation and expense of having to go through the foreclosure process. BOA is NOT going to deal with junior liens, unless, perhaps, THEY are the junior lien holder – and even then there is no guarantee
If this sounds appealing to you – CAVEAT EMPTOR!! In my estimation, if 10 homeowners in New York qualify for this program, I will be surprised…