A deed in lieu of foreclosure is a loss mitigation (foreclosure avoidance) option, together with short sales, loan adjustments, repayment plans, and forbearances. Specifically, a deed in lieu is a deal where the homeowner willingly moves title to the residential or commercial property to the holder of the loan (the bank) in exchange for the bank agreeing not to pursue a foreclosure.
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Most of the times, finishing a deed in lieu will release the debtor from all responsibilities and liability under the mortgage contract and promissory note.
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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 primary step in getting a deed in lieu is for the borrower to ask for a loss mitigation plan from the loan servicer (the business that manages the loan account). The application will require to be filled out and submitted in addition to paperwork about the borrower's income and costs consisting of:

- proof of earnings (generally two current pay stubs or, if the borrower is self-employed, a revenue and loss declaration).

• recent income tax return.
• a monetary declaration, detailing regular monthly earnings and expenditures.
• bank statements (normally two current declarations for all accounts), and.
• a challenge letter or challenge affidavit.
  
  What Is a Challenge?
  
  A "hardship" is a scenario that is beyond the debtor's control that results in the borrower no longer being able to manage to make mortgage payments. Hardships that get approved for loss mitigation consideration consist of, for example, job loss, decreased earnings, death of a partner, health problem, medical costs, divorce, rates of interest reset, and a natural disaster.
  
  Sometimes, the bank will need the debtor to attempt to offer the home for its reasonable market price before it will consider accepting a deed in lieu. Once the listing period ends, assuming the residential or commercial property hasn't sold, the servicer will order a title search.
  
  The bank will typically only accept a deed in lieu of foreclosure on a first mortgage, indicating there need to be no extra liens-like second mortgages, judgments from lenders, or tax liens-on the residential or commercial property. An exception to this general rule is if the very same bank holds both the first and the 2nd mortgage on the home. Alternatively, a customer can pick to settle any additional liens, such as a tax lien or judgment, to help with the deed in lieu deal. If and when the title is clear, then the servicer will schedule a brokers price opinion (BPO) to determine the fair market value of the residential or commercial property.
  
  To finish the deed in lieu, the customer 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 agreement between the bank and the borrower and will include an arrangement that the customer acted easily and willingly, not under browbeating or duress. This file might likewise include arrangements resolving whether the transaction is in full complete satisfaction 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 often structured so that the deal satisfies 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 worth and the debt.
  
  But if the bank desires to preserve its right to look for a shortage judgment, a lot of jurisdictions allow the bank to do so by clearly mentioning in the deal files that a balance stays after the deed in lieu. The bank normally needs to define the amount of the deficiency and include this amount in the deed in lieu files or in a different .
  
  Whether the bank can pursue a shortage judgment following a deed in lieu also in some cases depends on state law. Washington, for instance, has at least one case that mentions a loan holder may not obtain a shortage 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 since the deed in lieu was efficiently 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 qualified 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 finishing the transaction:
  
  - moving out of the home instantly.
• getting in into a three-month shift lease without any lease payment required, or.
• getting in into a twelve-month lease and paying rent at market rate.
  
  For more info on requirements and how to take part in the program, go here.
  
  Similarly, if Freddie Mac owns your loan, you may be eligible for an unique deed in lieu program, which may consist of moving assistance.
  
  Should You Consider Letting the Foreclosure Happen?
  
  In some states, a bank can get a deficiency judgment versus a property owner as part of a foreclosure or after that by submitting a different claim. In other states, state law prevents a bank from getting a deficiency judgment following a foreclosure. If the bank can't get a shortage judgment versus you after a foreclosure, you may be much better off letting a foreclosure occur rather than doing a deed in lieu of foreclosure that leaves you responsible for a shortage.
  
  Generally, it might not be worth doing a deed in lieu of foreclosure unless you can get the bank to accept forgive or decrease the deficiency, you get some cash as part of the transaction, or you get additional time to remain in the residential or commercial property (longer than what you 'd get if you let the foreclosure go through). For specific advice about what to do in your specific circumstance, talk to a regional foreclosure legal representative.
  
  Also, you must consider for how long it will require to get a new mortgage after a deed in lieu versus a foreclosure. Fannie Mae, for circumstances, will purchase loans made two years after a deed in lieu if there are extenuating circumstances, like divorce, medical expenses, or a job layoff that caused you economic difficulty, compared to a three-year wait after a foreclosure. (Without extenuating situations, the waiting duration for a Fannie Mae loan is 7 years after a foreclosure or four years after a deed in lieu.) On the other hand, the Federal Housing Administration (FHA) treats foreclosures, short sales, and deeds in lieu the same, normally making it's mortgage insurance available after three years.
  
  When to Seek Counsel
  
  If you require assistance comprehending the deed in lieu process or interpreting the files you'll be needed to sign, you should think about seeking advice from a qualified lawyer. An attorney can likewise assist you negotiate a release of your personal liability or a minimized deficiency if needed.