A deed in lieu of foreclosure is a loss mitigation (foreclosure avoidance) option, in addition to brief sales, loan adjustments, payment plans, and forbearances. Specifically, a deed in lieu is a transaction where the house owner 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.

For the most part, finishing a deed in lieu will release the customer from all obligations 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 obtaining a deed in lieu is for the debtor to ask for a loss mitigation bundle from the loan servicer (the company that handles the loan account). The application will require to be submitted and sent in addition to paperwork about the borrower's income and expenditures including:

- proof of income (typically 2 recent pay stubs or, if the customer is self-employed, a revenue and loss statement).

• current tax returns.
• a financial statement, detailing monthly earnings and costs.
• bank declarations (normally two recent declarations for all accounts), and.
• a hardship letter or difficulty affidavit.
  
  What Is a Hardship?
  
  A "hardship" is a circumstance that is beyond the customer's control that leads to the debtor no longer having the ability to manage to make mortgage payments. Hardships that qualify for loss mitigation factor to consider consist of, for instance, job loss, minimized income, death of a spouse, illness, medical costs, divorce, interest rate 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, presuming the residential or commercial property hasn't sold, the servicer will purchase a title search.
  
  The bank will normally just accept a deed in lieu of foreclosure on a very first mortgage, meaning there need to be no additional liens-like 2nd mortgages, judgments from lenders, 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 borrower can choose to settle any extra 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 opinion (BPO) to figure out the fair market price of the residential or commercial property.
  
  To finish the deed in lieu, the debtor 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 agreement in between the bank and the customer and will consist of an arrangement that the debtor acted easily and voluntarily, not under browbeating or duress. This document might likewise include arrangements attending to whether the transaction is in full satisfaction of the debt or whether the bank has the right to seek a deficiency 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 most 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 wishes to protect its right to look for a deficiency judgment, most jurisdictions allow the bank to do so by clearly specifying in the transaction files that a balance remains 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 documents or in a separate agreement.
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  Whether the bank can pursue a deficiency judgment following a deed in lieu likewise sometimes depends on state law. Washington, for instance, has at least one case that specifies a loan holder might not get a deficiency judgment after a deed in lieu, even if the factor to consider is less than a full discharge of the financial obligation. (See Thompson v. Smith, 58 Wash. App. 361 (1990) ). In the Thompson case, the court ruled that due to the fact that the deed in lieu was efficiently 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 might be qualified for its Mortgage Release (deed in lieu) program. Under this program, a borrower who is eligible for a deed in lieu has three choices after completing the deal:
  
  - vacating the home immediately.
• getting in into a three-month transition lease with no rent payment needed, or.
• participating in a twelve-month lease and paying rent at market rate.
  
  To find out more on requirements and how to partake in the program, go here.
  
  Similarly, if Freddie Mac owns your loan, you might be qualified for a special deed in lieu program, which may consist of relocation support.
  
  Should You Consider Letting the Foreclosure Happen?
  
  In some states, a bank can get a shortage judgment versus a property 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 deficiency judgment versus you after a foreclosure, you may be 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 be worth doing a deed in lieu of foreclosure unless you can get the bank to agree to forgive or lower the shortage, you get some cash as part of the transaction, or you get extra time to stay 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 particular scenario, speak to a local foreclosure legal representative.
  
  Also, you ought to take into account for how long it will require to get a brand-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 scenarios, like divorce, medical bills, or a task layoff that caused you economic problem, compared to a three-year wait after a foreclosure. (Without 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 exact same, typically making it's mortgage insurance readily available after 3 years.
  
  When to Seek Counsel
  
  If you need help comprehending the deed in lieu process or interpreting the files you'll be required to sign, you must consider seeking advice from with a certified attorney. A lawyer can likewise help you negotiate a release of your individual liability or a minimized shortage if essential.
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