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September 2010
Foreclosure Options
By John Northey

     If you have been reading about real estate loan defaults and bank foreclosures, you may have seen terms other than “foreclosure” used. You may not be aware that banks and borrowers engage in two other types of transactions other than public foreclosure sales.

     In order to save the time and expense of foreclosure litigation, banks and borrowers may either engage in a “short sale” or transfer a “deed in lieu of foreclosure.” These transactions are negotiated between the bank and the borrower.

     A “short sale” occurs when a third party purchases real estate for an amount less than the debt owed on the real estate. In this case, the bank has to be willing to release its interest in the property for the amount paid by the third party.

     A “deed in lieu of foreclosure” or “deed in lieu” occurs when the borrower voluntarily transfers the real estate subject to the debt to the bank. A part of this transaction also involves an agreement by the bank and the borrower about the value of the property transferred to the bank.

     Neither of these transactions provides an automatic forgiveness of the debt owed to the bank. To the extent the “short sale” proceeds or agreed value of the property transferred by a “deed in lieu” is less than the debt owed to the bank, the borrower still has to pay that remaining amount owed. Many times, as part of these transactions, the borrower will negotiate with the bank with regard to how much the borrower must pay, if anything, to satisfy the debt to the bank.

     If you are dealing with your own business loans being in default, keep in mind that you may have options available other than bankruptcy or having your assets foreclosed upon. Consult an experienced legal advisor about which options may be available to you.

     Content provided by Wishart, Norris, Henninger & Pittman, P.A., which partners with owners of closely-held businesses to provide comprehensive legal services in all areas of business, tax, estate planning, succession planning, purchases and sales of businesses, real estate, family law, and litigation. For more information, contact Robert Norris at 704-364-0010 or visit

John Northey is a partner with Wishart, Norris, Henninger & Pittman, P.A., a law firm with offices in Charlotte and Burlington serving institutions, professionals, businesses and business owners.
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