A deed in lieu of foreclosure is a loss mitigation (foreclosure avoidance) option, along with brief sales, loan modifications, repayment strategies, and . Specifically, a deed in lieu is a transaction where the property owner willingly transfers 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.

For the most part, completing 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 getting a deed in lieu is for the customer to ask for a loss mitigation bundle from the loan servicer (the company that handles the loan account). The application will need to be submitted and sent in addition to documentation about the customer's income and expenditures including:

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

• recent income tax return.
• a monetary statement, detailing regular monthly income and expenses.
• bank statements (usually 2 current declarations for all accounts), and.
• a challenge letter or difficulty affidavit.
  
  What Is a Difficulty?
  
  A "challenge" is a situation that is beyond the customer's control that results in the customer no longer being able to pay for to make mortgage payments. Hardships that certify for loss mitigation factor to consider include, for instance, job loss, reduced income, death of a spouse, disease, medical expenditures, divorce, interest rate reset, and a natural catastrophe.
  
  Sometimes, the bank will require the borrower to try to offer the home for its fair market price before it will consider accepting a deed in lieu. Once the listing duration ends, assuming the residential or commercial property hasn't offered, the servicer will order a title search.
  
  The bank will typically only accept a deed in lieu of foreclosure on a very first mortgage, indicating there need to be no additional liens-like 2nd mortgages, judgments from creditors, or tax liens-on the residential or commercial property. An exception to this basic rule is if the same bank holds both the first and the second mortgage on the home. Alternatively, a customer 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 determine the fair market price of the residential or commercial property.
  
  To finish the deed in lieu, the debtor will be needed to sign a grant deed in lieu of foreclosure, which is the file that moves ownership of the residential or commercial property to the bank, and an estoppel affidavit. The estoppel affidavit sets out the terms of the agreement in between the bank and the borrower and will consist of a provision that the borrower acted easily and voluntarily, not under coercion or duress. This file might also consist of provisions attending to whether the deal is in complete satisfaction of the financial obligation or whether the bank has the right to look for a deficiency judgment.
  
  Deficiency Judgments Following a Deed in Lieu of Foreclosure
  
  A deed in lieu is typically structured so that the transaction pleases the mortgage debt. So, with a lot of deeds in lieu, the bank can't get a deficiency judgment for the difference in between the home's reasonable market price and the debt.
  
  But if the bank desires to maintain its right to seek a shortage judgment, the majority of jurisdictions allow the bank to do so by clearly mentioning in the transaction documents that a balance remains after the deed in lieu. The bank typically requires to define the quantity of the deficiency and include this amount in the deed in lieu files or in a separate agreement.
  
  Whether the bank can pursue a shortage judgment following a deed in lieu also sometimes depends upon state law. Washington, for example, has at least one case that specifies a loan holder might not get a shortage judgment after a deed in lieu, even if the factor to consider is less than a complete discharge of the financial obligation. (See Thompson v. Smith, 58 Wash. App. 361 (1990) ). In the Thompson case, the court ruled that because the deed in lieu was successfully a nonjudicial foreclosure, the debtor 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 customer who is qualified for a deed in lieu has 3 alternatives after completing the transaction:
  
  - moving out of the home immediately.
• entering into a three-month shift lease with no lease payment needed, or.
• participating in a twelve-month lease and paying rent at market rate.
  
  To learn more on requirements and how to take part in the program, go here.
  
  Similarly, if Freddie Mac owns your loan, you may be qualified for a special deed in lieu program, which might include moving 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 different claim. In other states, state law avoids a bank from getting a shortage 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 instead of doing a deed in lieu of foreclosure that leaves you responsible for a deficiency.
  
  Generally, it might not deserve doing a deed in lieu of foreclosure unless you can get the bank to agree to forgive or decrease the shortage, 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 particular guidance about what to do in your particular situation, talk to a regional foreclosure lawyer.
  
  Also, you ought to take into consideration how long it will take to get a new mortgage after a deed in lieu versus a foreclosure. Fannie Mae, for circumstances, will purchase loans made 2 years after a deed in lieu if there are extenuating circumstances, like divorce, medical costs, or a task layoff that triggered you financial trouble, 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, brief sales, and deeds in lieu the same, normally making it's mortgage insurance offered after 3 years.
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  When to Seek Counsel
  
  If you need aid understanding the deed in lieu procedure or translating the documents you'll be required to sign, you need to think about talking to a qualified attorney. A lawyer can likewise help you work out a release of your individual liability or a decreased deficiency if required.
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