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In an earlier article, we examined certain equitable defenses that borrowers may avail themselves of when fighting a lender’s enforcement of remedies.1 These equitable defenses, we posited, were more likely to be made when a lender pursued a foreclosure action in reliance on a non-monetary default as opposed to plainly objective payment defaults. While recognizing that lenders would be better positioned in a litigation if they waited for a payment or maturity default, some lenders, we noted, would be unwilling to sit by, unable to take control of a troubled property while waiting for a monetary default which may take months or years to occur in some cases. This unique aspect of the current crisis and the prevalence of loans that are objectively bad but not yet in payment default has yielded a new, widely used term, “zombie loans.” This article will explore the use of deed-in-lieu transactions as a method of dealing with zombie loans as well as the possible hurdles a lender may face when choosing a seemingly logical remedy to take control of a troubled property.

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