A deed in lieu of foreclosure is a loss mitigation (foreclosure avoidance) alternative, in addition to brief sales, loan adjustments, payment strategies, and forbearances. Specifically, a deed in lieu is a deal where the homeowner voluntarily 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, completing a deed in lieu will launch the customer from all responsibilities and liability under the mortgage agreement 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 acquiring a deed in lieu is for the debtor to request a loss mitigation plan from the loan servicer (the business that manages the loan account). The application will require to be submitted and sent along with documentation about the debtor's earnings and expenditures consisting of:

- evidence of earnings (usually 2 recent pay stubs or, if the debtor is self-employed, a revenue and loss statement).

• current tax returns.
• a financial statement, detailing regular monthly earnings and expenses.
• bank statements (typically two current statements for all accounts), and.
• a challenge letter or challenge affidavit.
  
  What Is a Challenge?
  
  A "difficulty" is a circumstance that is beyond the borrower's control that results in the debtor no longer being able to manage to make mortgage payments. Hardships that receive loss mitigation factor to consider include, for instance, job loss, decreased earnings, death of a spouse, illness, medical costs, divorce, rate of interest reset, and a natural disaster.
  
  Sometimes, the bank will require the borrower to attempt to sell the home for its reasonable market price before it will consider accepting a deed in lieu. Once the listing period ends, presuming the residential or commercial property hasn't offered, the servicer will purchase a title search.
  
  The bank will generally just accept a deed in lieu of foreclosure on a very first mortgage, indicating there should be no extra 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 exact same bank holds both the first and the 2nd mortgage on the home. Alternatively, a debtor can select to settle 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 worth 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 debtor and will consist of an arrangement that the customer acted easily and voluntarily, not under coercion or pressure. This document may likewise consist of arrangements attending to whether the deal is in full satisfaction of the debt or whether the bank deserves to look for a shortage judgment.
  
  Deficiency Judgments Following a Deed in Lieu of Foreclosure
  
  A deed in lieu is frequently structured so that the deal satisfies the mortgage debt. So, with the majority of deeds in lieu, the bank can't get a deficiency judgment for the distinction in between the home's fair market price and the debt.
  
  But if the bank desires to preserve its right to look for a deficiency judgment, many jurisdictions permit the bank to do so by clearly mentioning in the deal files that a balance stays after the deed in lieu. The bank usually needs to specify the amount of the deficiency 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 sometimes depends on state law. Washington, for instance, has at least one case that states a loan holder might not obtain a deficiency judgment after a deed in lieu, even if the consideration 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 effectively a nonjudicial foreclosure, the borrower was entitled to defense 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 options after finishing the deal:
  
  - vacating the home instantly.
• getting in into a three-month transition lease with no lease payment needed, or.
• entering into a twelve-month lease and paying rent at market rate.
  
  To find out more on requirements and how to engage in the program, go here.
  
  Similarly, if Freddie Mac owns your loan, you may be qualified for a special deed in lieu program, which may consist of relocation assistance.
  
  Should You Consider Letting the Foreclosure Happen?
  
  In some states, a bank can get a shortage judgment against a homeowner as part of a foreclosure or after that by submitting a separate suit. In other states, state law prevents 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 might be better off letting a foreclosure take place instead of doing a deed in lieu of foreclosure that leaves you liable for a deficiency.
  
  Generally, it may not be worth doing a deed in lieu of foreclosure unless you can get the bank to consent to forgive or reduce the deficiency, you get some money as part of the transaction, or you receive extra time to stay 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 specific scenario, speak with a local foreclosure lawyer.
  
  Also, you ought to take into account the length of time it will require to get a new mortgage after a deed in lieu versus a foreclosure. Fannie Mae, for instance, 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 caused you economic difficulty, compared to a three-year wait after a foreclosure. (Without extenuating circumstances, 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) deals with foreclosures, brief sales, and deeds in lieu the exact same, typically making it's mortgage insurance offered after 3 years.
  
  When to Seek Counsel
  
  If you need assistance understanding the deed in lieu procedure or interpreting the files you'll be needed to sign, you should consider talking to a certified attorney. A lawyer can also help you work out a release of your personal liability or a minimized shortage if necessary.