A deed in lieu of foreclosure is a loss mitigation (foreclosure avoidance) option, together with brief sales, loan modifications, repayment strategies, and forbearances. Specifically, a deed in lieu is a transaction where the homeowner voluntarily transfers 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.

In a lot of cases, completing a deed in lieu will launch the customer from all responsibilities and liability under the mortgage contract 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 very first action in acquiring a deed in lieu is for the borrower to ask for a loss mitigation plan from the loan servicer (the company that handles the loan account). The application will require to be submitted and sent together with documentation about the debtor's income and costs consisting of:

- proof of earnings (typically 2 current pay stubs or, if the customer is self-employed, a revenue and loss declaration).

• current income tax return.
• a monetary statement, detailing regular monthly income and expenses.
• bank statements (usually 2 current statements for all accounts), and.
• a difficulty letter or hardship affidavit.
  
  What Is a Challenge?
  
  A "challenge" is a circumstance that is beyond the debtor's control that leads to the borrower no longer being able to manage to make mortgage payments. Hardships that qualify for loss mitigation factor to consider consist of, for instance, job loss, lowered earnings, death of a spouse, disease, medical expenses, divorce, interest rate reset, and a natural catastrophe.
  
  Sometimes, the bank will need the customer to attempt to offer the home for its reasonable market value before it will consider accepting a deed in lieu. Once the listing period expires, assuming the residential or commercial property hasn't offered, the servicer will buy a title search.
  
  The bank will generally just accept a deed in lieu of foreclosure on a first mortgage, suggesting there should be no additional liens-like 2nd mortgages, judgments from financial institutions, or tax liens-on the residential or commercial property. An exception to this basic guideline is if the same bank holds both the first and the 2nd mortgage on the home. Alternatively, a customer can choose 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 cost opinion (BPO) to identify the fair market price of the residential or commercial property.
  
  To finish the deed in lieu, the borrower will be required 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 contract between the bank and the customer and will consist of a provision that the customer acted easily and voluntarily, not under coercion or duress. This file might likewise include provisions attending to whether the deal remains in full fulfillment of the debt or whether the bank has the right to look for a shortage judgment.
  
  Deficiency Judgments Following a Deed in Lieu of Foreclosure
  
  A deed in lieu is frequently structured so that the transaction pleases the mortgage debt. So, with many deeds in lieu, the bank can't get a deficiency judgment for the difference between the home's fair market price and the debt.
  
  But if the bank wishes to protect its right to seek a deficiency judgment, a lot of jurisdictions allow the bank to do so by plainly specifying in the transaction documents that a balance remains after the deed in lieu. The bank usually requires to define the amount of the deficiency and include this amount in the deed in lieu documents or in a different arrangement.
  
  Whether the bank can pursue a shortage judgment following a deed in lieu likewise in some cases depends upon state law. Washington, for example, has at least one case that mentions a loan holder may not acquire a shortage judgment after a deed in lieu, even if the factor to consider is less than a full discharge of the debt. (See Thompson v. Smith, 58 Wash. App. 361 (1990) ). In the Thompson case, the court ruled that since the deed in lieu was effectively a nonjudicial foreclosure, the customer was entitled to protection under Washington's anti-deficiency laws.
  
  Mortgage Release Program Under Fannie Mae
  
  If Fannie Mae owns your mortgage loan, you may be eligible for its Mortgage Release (deed in lieu) program. Under this program, a borrower who is qualified for a deed in lieu has 3 choices after finishing the deal:
  
  - vacating the home immediately.
• getting in into a three-month shift lease with no lease payment required, or.
• entering into a twelve-month lease and paying rent at market rate.
  
  For more details on requirements and how to take part in the program, go here.
  moolatalk.com
  Similarly, if Freddie Mac owns your loan, you might be eligible for a special deed in lieu program, which may consist of moving help.
  
  Should You Consider Letting the Foreclosure Happen?
  
  In some states, a bank can get a deficiency judgment against a house owner as part of a foreclosure or after that by submitting a different lawsuit. In other states, state law prevents 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 may be much better off letting a foreclosure occur instead of doing a deed in lieu of foreclosure that leaves you accountable for a deficiency.
  
  Generally, it may not be worth doing a deed in lieu of foreclosure unless you can get the bank to consent to forgive or lower the deficiency, you get some money as part of the transaction, or you get extra time to remain in the residential or commercial property (longer than what you 'd get if you let the foreclosure go through). For specific suggestions about what to do in your particular situation, talk with a local foreclosure legal representative.
  
  Also, you should take into account the length of time it will require to get a new after a deed in lieu versus a foreclosure. Fannie Mae, for example, will purchase loans made two years after a deed in lieu if there are extenuating situations, like divorce, medical expenses, or a task layoff that caused you financial problem, compared to a three-year wait after a foreclosure. (Without extenuating scenarios, 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) deals with foreclosures, short sales, and deeds in lieu the very same, typically making it's mortgage insurance coverage readily available after 3 years.
  
  When to Seek Counsel
  
  If you require assistance understanding the deed in lieu process or interpreting the documents you'll be needed to sign, you must think about talking to a certified lawyer. An attorney can also assist you negotiate a release of your individual liability or a minimized deficiency if necessary.