A deed in lieu of foreclosure is a loss mitigation (foreclosure avoidance) choice, along with short sales, loan modifications, payment 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.

For the most part, completing a deed in lieu will launch the debtor from all commitments 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 first step in getting 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 completed and submitted in addition to documentation about the borrower's earnings and costs consisting of:

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

• current tax returns.
• a monetary declaration, income and costs.
• bank declarations (usually 2 recent statements for all accounts), and.
• a difficulty letter or hardship affidavit.
  
  What Is a Difficulty?
  
  A "difficulty" is a scenario that is beyond the customer's control that leads to the borrower no longer being able to pay for to make mortgage payments. Hardships that receive loss mitigation factor to consider include, for instance, task loss, decreased earnings, death of a partner, health problem, medical costs, divorce, rates of interest reset, and a natural catastrophe.
  
  Sometimes, the bank will need the customer to attempt to sell the home for its reasonable market worth before it will consider accepting a deed in lieu. Once the listing duration expires, presuming the residential or commercial property hasn't offered, the servicer will purchase a title search.
  
  The bank will normally only accept a deed in lieu of foreclosure on a first mortgage, meaning 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 exact same bank holds both the very first and the 2nd mortgage on the home. Alternatively, a customer can select to pay off any extra 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 rate viewpoint (BPO) to determine the reasonable 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 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 between the bank and the borrower and will include a provision that the debtor acted freely and voluntarily, not under coercion or duress. This document may also consist of provisions attending to whether the transaction is in complete satisfaction of the debt or whether the bank has the right to seek a shortage judgment.
  
  Deficiency Judgments Following a Deed in Lieu of Foreclosure
  
  A deed in lieu is typically structured so that the deal satisfies the mortgage financial obligation. So, with many deeds in lieu, the bank can't get a deficiency judgment for the difference in between the home's fair market worth and the debt.
  
  But if the bank wants to preserve its right to seek a deficiency judgment, a lot of jurisdictions permit the bank to do so by clearly specifying in the deal documents that a balance remains after the deed in lieu. The bank typically needs to define the quantity of the shortage and include this quantity in the deed in lieu documents or in a separate arrangement.
  
  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 might not obtain a deficiency 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 due to the fact that the deed in lieu was efficiently a nonjudicial foreclosure, the customer was entitled to security 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 debtor who is qualified for a deed in lieu has three alternatives after finishing the deal:
  
  - vacating the home immediately.
• participating in a three-month transition lease with no rent payment required, or.
• entering into a twelve-month lease and paying rent at market rate.
  
  For more information on requirements and how to engage 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 include moving help.
  
  Should You Consider Letting the Foreclosure Happen?
  
  In some states, a bank can get a deficiency judgment versus a house owner as part of a foreclosure or after that by filing a different suit. 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 better off letting a foreclosure take place instead of doing a deed in lieu of foreclosure that leaves you liable for a shortage.
  
  Generally, it may not deserve doing a deed in lieu of foreclosure unless you can get the bank to agree to forgive or lower the deficiency, you get some money as part of the transaction, or you receive 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 specific scenario, talk with a regional foreclosure legal representative.
  
  Also, you ought to consider how long it will take to get a new mortgage after a deed in lieu versus a foreclosure. Fannie Mae, for circumstances, will buy loans made 2 years after a deed in lieu if there are extenuating circumstances, like divorce, medical bills, or a job layoff that caused you financial difficulty, compared to a three-year wait after a foreclosure. (Without extenuating situations, the waiting period 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 very same, typically making it's mortgage insurance coverage available after three years.
  
  When to Seek Counsel
  
  If you need help comprehending the deed in lieu procedure or interpreting the files you'll be needed to sign, you need to think about speaking with a qualified lawyer. An attorney can likewise help you negotiate a release of your personal liability or a minimized deficiency if needed.
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