A Wisconsin deed in lieu of foreclosure is the transfer of a deed to the mortgage lender as a way of fulfilling payment on a loan on which the homeowner has defaulted. If the lender will accept the deed in lieu, foreclosure can be avoided.

The main advantage for the borrower to use the deed in lieu is that it instantly relieves them of their debt. The borrower is also able to avoid all of the negative repercussions associated with foreclosure proceedings, and at the same time, they might get better, more generous terms from the lender than they would have had a lawsuit been initiated.

Deed in Lieu Laws in Wisconsin

If a homeowner is in default, the lender can initiate a judicial foreclosure lawsuit. Power of sale by trustee or nonjudicial foreclosures are not allowed under Wisconsin law. Foreclosures necessitate formal legal proceedings, potentially resulting in a costly lawsuit for the lender. As a result, the lender sometimes opts to accept a deed in lieu of foreclosure. As a safeguard, residents need to be knowledgeable about borrowers' rights under Wisconsin state law before deciding that offering a deed in lieu of foreclosure is the best solution for them.

A deed in lieu of foreclosure is transferred to the lender by the owner of the property, who has become overwhelmed by a defaulted mortgage loan for the purpose of complete restitution. The lender gets the title of the property which is subject to existing claims or liens against the property, but the mortgage doesn't merge with the lender's title to the property. When the lender accepts a deed in lieu, the borrower is no longer liable for the mortgage debt unless an agreement stipulates otherwise.

The stipulations under which a borrower will offer and a lender will accept a deed in lieu of foreclosure are open to discussion and will depend heavily on the negotiating positions of the parties involved. The deed in lieu may be more advantageous to the borrower and lender than foreclosure. Wisconsin state law doesn't specify any time limits during the foreclosure process as when the lender can accept a deed in lieu, so the lender can accept a deed up until seconds before an execution sale takes place.

The Advantages of Deed in Lieu to be Accepted by the Lender

There are benefits for a lender to accept a deed in lieu of foreclosure, such as:

  • The lender becomes the owner of the property. It controls the operation of the property, optimizing economic value, and use of any commercial income, while retaining existing contracts and tenants.
  • Deed in lieu transactions can be quickly negotiated and completed so that the property is instantly suitable for sale.
  • The time, publicity, and cost of a formal foreclosure lawsuit is averted.
  • If the property has no equity, the transaction cannot be nullified if the borrower decides to file for bankruptcy at a later time or tries to retract the transaction. This is not the case with foreclosure, leaving the lender vulnerable until the property is successfully seized and sold.

Issues That a Lender Needs to Consider Before Accepting a Deed in Lieu

A lender should reconsider accepting a lieu deed because:

  • There is a partial conveyance of the property unless the entire mortgage debt becomes extricated as a result of the partial conveyance
  • There are outstanding subordinate liens or judgments against the property because the lender will have to foreclose its mortgage.
  • The structure of a deed in lieu is such that it will not result in converging the mortgage lien with the title of the property when the transaction is completed, which will prevent the lender from foreclosing secondary liens. This will save the lender time and money, as they do not have to pursue other debtors.

If you have any further questions about a Wisconsin deed in lieu of foreclosure, you have concerns about borrowers' rights under Wisconsin state law, or if you need to clarify what a lender should know about the property in question before accepting a lieu deed, post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top five percent of lawyers, coming from law schools such as Harvard Law and Yale Law, having an average of 14 years of legal experience which includes working with or on behalf of companies like Stripe, Twilio, and Google.