At the IMN Distressed CRE West Forum, it was highlighted that a significant number of borrowers are opting for deeds-in-lieu of foreclosure rather than engaging in lengthy court processes. About one-third of borrowers are currently choosing this route, leading lenders to face increasing responsibilities, including cleanup of properties with outstanding debts. Panelists stressed that while this option appears straightforward, it often complicates matters for banks that are reluctant to take on additional property liabilities, especially when the properties' market values fall below owed amounts. Overall, the trend indicates a growing frustration among borrowers amid tough economic conditions.
The borrower is actually coming to the bank and saying, Look, will you accept a deed-in-lieu? We're done. We don't want to go through the foreclosure process.
But banks do not want to own more buildings, especially where the value of the property becomes significantly lower than the debt.
The offer of the deed-in-lieu is interesting, but it's usually not going to work out well from the bank's perspective.
In the current environment, that's not enough to make the grade.
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