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A deed in lieu of foreclosure is a loss mitigation (foreclosure avoidance) choice, together with short sales, loan modifications, payment strategies, and forbearances. Specifically, a deed in lieu is a deal 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.

In a lot of cases, completing a deed in lieu will release the debtor from all responsibilities 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 primary step in acquiring 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 require to be completed and sent in addition to documents about the customer's earnings and expenses including:

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

• recent income tax return.
• a financial declaration, detailing monthly earnings and costs.
• bank declarations (normally 2 recent statements for all accounts), and.
• a difficulty letter or challenge affidavit.
  
  What Is a Hardship?
  
  A "hardship" is a scenario that is beyond the debtor's control that results in the customer no longer being able to afford to make mortgage payments. Hardships that get approved for loss mitigation consideration consist of, for instance, job loss, lowered income, death of a partner, disease, medical expenses, divorce, interest rate reset, and a natural disaster.
  
  Sometimes, the bank will require the borrower to try to offer the home for its reasonable market value before it will consider accepting a deed in lieu. Once the listing duration ends, assuming the residential or commercial property hasn't sold, the servicer will order a title search.
  
  The bank will generally only accept a deed in lieu of foreclosure on a very first mortgage, suggesting 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 general rule is if the exact same bank holds both the very first and the 2nd mortgage on the home. Alternatively, a customer can pick to pay off any additional liens, such as a tax lien or judgment, to assist in the deed in lieu deal. If and when the title is clear, then the servicer will set up for a brokers cost opinion (BPO) to figure out the reasonable market value of the residential or commercial property.
  
  To finish the deed in lieu, the borrower 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 contract in between the bank and the borrower and will consist of a provision that the customer acted easily and willingly, not under coercion or duress. This document may likewise include provisions resolving whether the deal is in complete complete satisfaction of the debt or whether the bank deserves 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 satisfies the mortgage financial obligation. So, with the majority of deeds in lieu, the bank can't get a shortage judgment for the difference between the home's fair market price and the financial obligation.
  
  But if the bank wants to protect its right to look for a shortage judgment, many jurisdictions allow the bank to do so by clearly specifying in the transaction documents that a balance remains after the deed in lieu. The bank typically requires to specify the amount of the deficiency and include this amount in the deed in lieu files or in a separate contract.
  
  Whether the bank can pursue a shortage judgment following a deed in lieu also sometimes 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 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 efficiently a nonjudicial foreclosure, the debtor was entitled to defense 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 debtor who is eligible for a deed in lieu has 3 alternatives after finishing the transaction:
  
  - moving out of the home instantly.
• getting in into a three-month transition lease with no rent payment required, or.
• participating in a twelve-month lease and paying rent at market rate.
  
  To learn more on requirements and how to engage in the program, go here.
  
  Similarly, if Freddie Mac owns your loan, you may be eligible for a special deed in lieu program, which may include relocation help.
  
  Should You Consider Letting the Foreclosure Happen?
  
  In some states, a bank can get a deficiency judgment against a homeowner as part of a foreclosure or after that by submitting a different lawsuit. 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 might be better off letting a foreclosure occur instead of doing a deed in lieu of foreclosure that leaves you liable for a deficiency.
  
  Generally, it may not deserve doing a deed in lieu of foreclosure unless you can get the bank to concur to forgive or minimize the deficiency, you get some cash as part of the deal, 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 recommendations about what to do in your specific circumstance, talk to a regional foreclosure attorney.
  
  Also, you ought to take into account how long it will require to get a new mortgage 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 circumstances, like divorce, medical costs, or a task layoff that triggered you economic problem, compared to a three-year wait after a foreclosure. (Without extenuating circumstances, the waiting duration for a loan is 7 years after a foreclosure or 4 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, usually making it's mortgage insurance readily available after 3 years.
  
  When to Seek Counsel
  
  If you require assistance comprehending the deed in lieu procedure or analyzing the documents you'll be needed to sign, you should consider talking to a certified attorney. A lawyer can also assist you work out a release of your individual liability or a minimized deficiency if required.