A deed in lieu of foreclosure is a loss mitigation (foreclosure avoidance) option, in addition to short sales, loan adjustments, repayment strategies, and forbearances. Specifically, a deed in lieu is a transaction where the property owner voluntarily moves title to the residential or commercial property to the holder of the loan (the bank) in exchange for the bank concurring not to pursue a foreclosure.
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In many cases, finishing a deed in lieu will launch the debtor from all obligations and liability under the mortgage agreement and promissory note.

How Does a Deed in Lieu of Foreclosure Work?
Deficiency Judgments Following a Deed in Lieu of Foreclosure
Mortgage Release Program Under Fannie Mae
Should You Consider Letting the Foreclosure Happen?
When to Seek Counsel
How Does a Deed in Lieu of Foreclosure Work?

The initial step in acquiring a deed in lieu is for the customer to ask for a loss mitigation plan from the loan servicer (the company that handles the loan account). The application will require to be filled out and sent along with documents about the debtor's earnings and costs consisting of:

- proof of income (normally two recent pay stubs or, if the is self-employed, an earnings and loss statement).

• recent tax returns.
• a monetary statement, detailing month-to-month earnings and expenditures.
• bank declarations (usually two recent declarations for all accounts), and.
• a difficulty letter or difficulty affidavit.
  
  What Is a Challenge?
  
  A "challenge" is a scenario that is beyond the borrower's control that leads to the debtor no longer being able to pay for to make mortgage payments. Hardships that receive loss mitigation consideration include, for example, job loss, minimized earnings, death of a partner, illness, medical costs, divorce, rates of interest reset, and a natural catastrophe.
  
  Sometimes, the bank will need the customer to try to offer the home for its reasonable market price before it will think about accepting a deed in lieu. Once the listing period ends, assuming the residential or commercial property hasn't offered, the servicer will buy a title search.
  
  The bank will usually just accept a deed in lieu of foreclosure on a first mortgage, indicating there should be no extra liens-like 2nd mortgages, judgments from lenders, or tax liens-on the residential or commercial property. An exception to this basic guideline is if the same bank holds both the very first and the second mortgage on the home. Alternatively, a borrower can pick to settle any additional liens, such as a tax lien or judgment, to facilitate the deed in lieu transaction. If and when the title is clear, then the servicer will schedule a brokers rate viewpoint (BPO) to figure out the reasonable market worth of the residential or commercial property.
  
  To finish the deed in lieu, the borrower will be needed to sign a grant deed in lieu of foreclosure, which is the file that transfers ownership of the residential or commercial property to the bank, and an estoppel affidavit. The estoppel affidavit sets out the regards to the arrangement in between the bank and the borrower and will consist of an arrangement that the debtor acted easily and willingly, not under browbeating or pressure. This file might also consist of arrangements attending to whether the transaction is in full satisfaction of the financial obligation or whether the bank deserves to seek a shortage judgment.
  
  Deficiency Judgments Following a Deed in Lieu of Foreclosure
  
  A deed in lieu is frequently structured so that the deal pleases the mortgage debt. So, with many deeds in lieu, the bank can't get a shortage judgment for the difference in between the home's reasonable market price and the debt.
  
  But if the bank wishes to preserve its right to look for a shortage judgment, most jurisdictions permit the bank to do so by clearly mentioning in the transaction files that a balance stays after the deed in lieu. The bank generally needs to specify the quantity of the deficiency and include this quantity in the deed in lieu documents or in a separate contract.
  
  Whether the bank can pursue a deficiency judgment following a deed in lieu also in some cases depends upon state law. Washington, for example, has at least one case that mentions a loan holder might not obtain a deficiency judgment after a deed in lieu, even if the consideration is less than a complete discharge of the debt. (See Thompson v. Smith, 58 Wash. App. 361 (1990) ). In the Thompson case, the court ruled that because the deed in lieu was efficiently a nonjudicial foreclosure, the customer was entitled to defense under Washington's anti-deficiency laws.
  
  Mortgage Release Program Under Fannie Mae
  
  If Fannie Mae owns your mortgage loan, you might be eligible for its Mortgage Release (deed in lieu) program. Under this program, a borrower who is eligible for a deed in lieu has 3 choices after completing the deal:
  
  - moving out of the home right away.
• participating in a three-month shift lease with no rent payment required, or.
• participating in a twelve-month lease and paying lease at market rate.
  
  For more info on requirements and how to partake in the program, go here.
  
  Similarly, if Freddie Mac owns your loan, you may be eligible for an unique deed in lieu program, which might include relocation assistance.
  
  Should You Consider Letting the Foreclosure Happen?
  
  In some states, a bank can get a shortage judgment versus a house owner as part of a foreclosure or after that by filing a separate lawsuit. In other states, state law avoids a bank from getting a shortage judgment following a foreclosure. If the bank can't get a deficiency judgment against you after a foreclosure, you might be much better off letting a foreclosure occur rather than doing a deed in lieu of foreclosure that leaves you accountable for a shortage.
  
  Generally, it might not deserve doing a deed in lieu of foreclosure unless you can get the bank to consent to forgive or decrease the shortage, you get some money as part of the deal, or you receive additional time to remain in the residential or commercial property (longer than what you 'd get if you let the foreclosure go through). For particular advice about what to do in your specific circumstance, speak with a local foreclosure attorney.
  
  Also, you ought to think about for how long it will require to get a brand-new mortgage after a deed in lieu versus a foreclosure. Fannie Mae, for example, will buy loans made two years after a deed in lieu if there are extenuating situations, like divorce, medical costs, or a task layoff that caused you economic difficulty, compared to a three-year wait after a foreclosure. (Without extenuating circumstances, the waiting period for a Fannie Mae loan is seven years after a foreclosure or four years after a deed in lieu.) On the other hand, the Federal Housing Administration (FHA) treats foreclosures, brief sales, and deeds in lieu the very same, normally making it's mortgage insurance readily available after 3 years.
  
  When to Seek Counsel
  
  If you require help understanding the deed in lieu process or interpreting the files you'll be required to sign, you should consider seeking advice from with a certified attorney. An attorney can likewise assist you work out a release of your personal liability or a minimized deficiency if required.