A deed in lieu of foreclosure is a loss mitigation (foreclosure avoidance) choice, in addition to short sales, loan modifications, repayment strategies, and forbearances. Specifically, a deed in lieu is a deal where the property owner willingly moves 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.
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For the most part, finishing a deed in lieu will release the borrower from all obligations 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 initial step in getting a deed in lieu is for the borrower to request a loss mitigation plan from the loan servicer (the business that handles the loan account). The application will require to be completed and submitted along with paperwork about the debtor's earnings and expenditures consisting of:

- proof of income (normally 2 current pay stubs or, if the borrower is self-employed, an earnings and loss statement).

• recent tax returns.
• a financial statement, detailing month-to-month income and costs.
• bank statements (generally two current declarations for all accounts), and.
• a challenge letter or difficulty affidavit.
  
  What Is a Hardship?
  
  A "difficulty" is a situation that is beyond the customer's control that results in the customer no longer being able to pay for to make mortgage payments. Hardships that qualify for loss mitigation consideration consist of, for example, task loss, decreased earnings, death of a spouse, illness, medical expenses, divorce, rate of interest reset, and a natural disaster.
  
  Sometimes, the bank will need the to try to offer the home for its reasonable market value before it will consider accepting a deed in lieu. Once the listing duration expires, assuming the residential or commercial property hasn't offered, the servicer will buy a title search.
  
  The bank will usually just accept a deed in lieu of foreclosure on a very first mortgage, meaning there need to be no extra liens-like 2nd mortgages, judgments from lenders, 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 second mortgage on the home. Alternatively, a borrower can select to pay off any extra liens, such as a tax lien or judgment, to facilitate the deed in lieu deal. If and when the title is clear, then the servicer will arrange for a brokers cost opinion (BPO) to figure out the reasonable market price of the residential or commercial property.
  
  To finish the deed in lieu, the borrower will be required to sign a grant deed in lieu of foreclosure, which is the document 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 in between the bank and the debtor and will include an arrangement that the borrower acted freely and willingly, not under browbeating or duress. This document may likewise include arrangements attending to whether the deal remains in full satisfaction of the financial obligation or whether the bank has the right to look for a shortage judgment.
  
  Deficiency Judgments Following a Deed in Lieu of Foreclosure
  
  A deed in lieu is often structured so that the transaction pleases the mortgage debt. So, with many deeds in lieu, the bank can't get a shortage judgment for the distinction between the home's fair market price and the financial obligation.
  
  But if the bank wishes to protect its right to seek a deficiency judgment, the majority of jurisdictions permit the bank to do so by plainly mentioning in the transaction documents that a balance stays after the deed in lieu. The bank usually needs to specify the amount of the shortage and include this quantity in the deed in lieu documents or in a different agreement.
  
  Whether the bank can pursue a shortage judgment following a deed in lieu also often depends upon state law. Washington, for instance, has at least one case that mentions 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 debt. (See Thompson v. Smith, 58 Wash. App. 361 (1990) ). In the Thompson case, the court ruled that since 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 eligible for a deed in lieu has 3 choices after completing the transaction:
  
  - vacating the home immediately.
• participating in a three-month transition lease with no rent payment required, or.
• getting in into a twelve-month lease and paying rent at market rate.
  
  For additional information on requirements and how to partake in the program, go here.
  
  Similarly, if Freddie Mac owns your loan, you may be eligible 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 against a house owner as part of a foreclosure or after that by filing a separate claim. 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 versus you after a foreclosure, you may be much better off letting a foreclosure happen instead of doing a deed in lieu of foreclosure that leaves you accountable for a deficiency.
  
  Generally, it may not be worth doing a deed in lieu of foreclosure unless you can get the bank to concur to forgive or lower the shortage, 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 suggestions about what to do in your particular situation, talk with a local foreclosure legal representative.
  
  Also, you must take into consideration for how long it will require to get a new mortgage after a deed in lieu versus a foreclosure. Fannie Mae, for circumstances, will purchase loans made two years after a deed in lieu if there are extenuating situations, like divorce, medical costs, or a task layoff that triggered you financial problem, compared to a three-year wait after a foreclosure. (Without extenuating scenarios, the waiting duration for a Fannie Mae loan is seven 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 same, typically making it's mortgage insurance readily available after three years.
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  When to Seek Counsel
  
  If you require help understanding the deed in lieu procedure or interpreting the documents you'll be needed to sign, you must consider speaking with a certified lawyer. A lawyer can likewise assist you work out a release of your personal liability or a decreased deficiency if required.