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A deed in lieu of foreclosure is a loss mitigation (foreclosure avoidance) alternative, along with brief sales, loan modifications, payment strategies, and forbearances. Specifically, a deed in lieu is a transaction where the homeowner willingly 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.

Most of the times, completing a deed in lieu will release the debtor from all responsibilities 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 primary step in obtaining a deed in lieu is for the customer to ask for a loss mitigation bundle from the loan servicer (the business that handles the loan account). The application will require to be completed and submitted in addition to paperwork about the borrower's earnings and expenditures including:

- evidence of earnings (normally 2 recent pay stubs or, if the debtor is self-employed, a profit and loss declaration).

• recent tax returns.
• a financial declaration, detailing regular monthly income and expenditures.
• bank statements (usually two recent statements for all accounts), and.
• a hardship letter or difficulty affidavit.
  
  What Is a Difficulty?
  
  A "hardship" is a scenario that is beyond the debtor's control that leads to the borrower no longer having the ability to manage to make mortgage payments. Hardships that get approved for loss mitigation consideration consist of, for example, job loss, lowered earnings, death of a spouse, disease, medical expenses, divorce, interest rate reset, and a natural catastrophe.
  
  Sometimes, the bank will need the debtor to attempt to sell the home for its fair market price before it will consider accepting a deed in lieu. Once the listing duration expires, presuming the residential or commercial property hasn't sold, the servicer will buy a title search.
  
  The bank will typically just accept a deed in lieu of foreclosure on a first mortgage, meaning there need to be no extra liens-like second mortgages, judgments from financial institutions, or tax liens-on the residential or commercial property. An exception to this basic rule is if the very same bank holds both the first and the 2nd mortgage on the home. Alternatively, a borrower can choose to pay off any additional liens, such as a tax lien or judgment, to help with the deed in lieu transaction. If and when the title is clear, then the servicer will schedule a brokers price viewpoint (BPO) to identify the reasonable 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 transfers 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 debtor and will consist of an arrangement that the customer acted easily and voluntarily, not under coercion or pressure. This document may also include arrangements dealing with whether the deal is in complete complete satisfaction of the financial obligation 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 typically structured so that the transaction satisfies the mortgage debt. So, with most deeds in lieu, the bank can't get a deficiency judgment for the distinction between the home's reasonable market price and the debt.
  
  But if the bank wishes to preserve its right to seek a shortage judgment, the majority of jurisdictions allow the bank to do so by plainly stating in the deal documents that a balance stays after the deed in lieu. The bank generally needs to specify the amount of the deficiency and include this quantity in the deed in lieu documents or in a different contract.
  
  Whether the bank can pursue a shortage judgment following a deed in lieu likewise in some cases depends on state law. Washington, for instance, has at least one case that states a loan holder may not get a deficiency judgment after a deed in lieu, even if the consideration 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 because 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 customer who is eligible for a deed in lieu has 3 options after finishing the transaction:
  
  - vacating the home immediately.
• participating in a three-month transition lease with no rent payment needed, or.
• participating in a twelve-month lease and paying rent at market rate.
  
  For more details on requirements and how to take part in the program, go here.
  
  Similarly, if Freddie Mac owns your loan, you may be qualified for an unique deed in lieu program, which might include moving assistance.
  
  Should You Consider Letting the Foreclosure Happen?
  
  In some states, a bank can get a deficiency judgment versus a homeowner as part of a foreclosure or after that by filing a separate lawsuit. In other states, state law avoids a bank from getting a deficiency judgment following a foreclosure. If the bank can't get a deficiency judgment against you after a foreclosure, you might be much better off letting a foreclosure take place rather than doing a deed in lieu of foreclosure that leaves you liable for a shortage.
  
  Generally, it might not deserve doing a deed in lieu of foreclosure unless you can get the bank to concur to forgive or decrease the shortage, you get some money as part of the deal, 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 particular advice about what to do in your specific circumstance, talk with a regional foreclosure legal representative.
  
  Also, you ought to take into account the length of time 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 triggered you economic difficulty, compared to a three-year wait after a foreclosure. (Without extenuating scenarios, the waiting period for a Fannie Mae loan is 7 years after a foreclosure or 4 years after a deed in lieu.) On the other hand, the Federal Housing Administration (FHA) treats foreclosures, brief sales, and deeds in lieu the exact same, generally making it's mortgage insurance readily available after three years.
  
  When to Seek Counsel
  
  If you need the deed in lieu process or analyzing the files you'll be required to sign, you need to think about seeking advice from a certified attorney. An attorney can also assist you negotiate a release of your personal liability or a minimized shortage if needed.