1. A conveyance by deed in lieu of foreclosure can never be insured without prior authorization by Agents National Title underwriting counsel.
2. Unless otherwise instructed by Agents National Title underwriting counsel, the following exception must appear on any commitment or policy insuring a deed in lieu of foreclosure:
“Any invalidity of or avoidance of the transfer of the title to the insured property pursuant to the provisions of the Bankruptcy Code (11 U.S.C.) or similar creditor’s rights or state insolvency laws.”
This exception must appear in any policy issued within one (1) year after the recordation date of the deed to the mortgagee/grantee and thereafter if a petition in bankruptcy was filed by or against the mortgagor/grantor or mortgagee/grantee within the one-year period.
[Upon specific approval from Agents National Title underwriting counsel, a policy may be issued to a lender or bona fide purchaser after 90 days but within the one-year period without exception to the above if the following can be determined:
The amount of the indebtedness is not less than seventy percent (70%) or equivalent of the fair market value of the property;
The mortgagee/grantee is not a relative, partner, affiliate, or other “insider” as defined under 11 USCA Sec. 101 of the Bankruptcy Code;
Mortgagee/Grantee or purchaser is without knowledge of the violability of the mortgagor’s transfer, such as insolvency of mortgagor/grantor, within 90 days of recordation date of the deed to mortgagee;
No petition for bankruptcy has been filed against the mortgagor/grantor or mortgagee/grantee within 90 days of recordation date of the deed to the mortgagee.]
3. In addition to the above creditor’s rights exception, the following requirement must be met:
a. The conveyance must be an absolute deed in lieu of foreclosure reciting full satisfaction and discharge of the indebtedness. The deed in lieu should contain language similar to the following:
“This deed is given as an absolute conveyance of the title in consideration of the cancellation of the debt in the amount of [AMOUNT OF INDEBTEDNESS] as secured by that mortgage dated __________ in the original amount of $__________, in favor of [LENDER NAME] and recorded on _______ in Book _________, Page __________, said Recorder’s Office and a release satisfaction of said mortgager and is not intended to be an additional security.”
b. It must be determined that the current value of the property is not substantially in excess of the balance due under the mortgage (which should not be less than 70% of the fair market value of the property).
c. Possession of the property must be surrendered by the mortgagor/grantor.
d. An affidavit signed by and between the parties and their principals must be obtained attesting to the fact that there are no recorded or unrecorded side agreements as to the property (such as an option to repurchase) or any proceeds therefrom.