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

In many cases, finishing a deed in lieu will release the debtor from all obligations 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?
yahoo.com
The very first step in obtaining a deed in lieu is for the customer to ask for a loss mitigation plan from the loan servicer (the company that handles the loan account). The application will need to be submitted and submitted in addition to documents about the debtor's earnings and expenditures consisting of:

- proof of income (typically two current pay stubs or, if the borrower is self-employed, a revenue and loss declaration).

• current income tax return.
• a monetary statement, detailing month-to-month income and costs.
• bank declarations (usually two recent declarations for all accounts), and.
• a hardship letter or difficulty affidavit.
  
  What Is a Hardship?
  
  A "challenge" is a situation that is beyond the debtor's control that leads to the customer no longer being able to afford to make mortgage payments. Hardships that receive loss mitigation factor to consider include, for example, task loss, lowered earnings, death of a spouse, health problem, medical expenditures, divorce, rate of interest reset, and a natural disaster.
  
  Sometimes, the bank will need the borrower to attempt to offer the home for its reasonable market price before it will consider accepting a deed in lieu. Once the listing period expires, presuming the residential or commercial property hasn't sold, the servicer will buy a title search.
  
  The bank will usually just accept a deed in lieu of foreclosure on a first mortgage, suggesting there need to be no extra liens-like 2nd mortgages, judgments from creditors, or tax liens-on the residential or commercial property. An exception to this general guideline is if the very same bank holds both the very first and the 2nd mortgage on the home. Alternatively, a borrower can pick to settle any extra liens, such as a tax lien or judgment, to facilitate the deed in lieu transaction. If and when the title is clear, then the servicer will schedule a brokers cost viewpoint (BPO) to identify the fair market value of the residential or commercial property.
  
  To finish the deed in lieu, the debtor will be required 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 customer and will consist of a provision that the debtor acted easily and voluntarily, not under coercion or duress. This document might also include provisions addressing whether the deal is in complete satisfaction of the debt or whether the bank deserves to seek a shortage judgment.
  
  Deficiency Judgments Following a Deed in Lieu of Foreclosure
  
  A deed in lieu is frequently structured so that the deal pleases the mortgage financial obligation. So, with many deeds in lieu, the bank can't get a deficiency judgment for the distinction in between the home's reasonable market worth and the debt.
  
  But if the bank desires to protect its right to look for a shortage judgment, most jurisdictions allow the bank to do so by clearly stating in the transaction files that a balance stays after the deed in lieu. The bank normally needs to define the quantity of the deficiency and include this quantity in the deed in lieu documents or in a separate arrangement.
  comcepta.com
  Whether the bank can pursue a shortage judgment following a deed in lieu likewise sometimes depends on state law. Washington, for instance, has at least one case that states 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 successfully a nonjudicial foreclosure, the borrower was entitled to security under Washington's anti-deficiency laws.
  
  Mortgage Release Program Under Fannie Mae
  
  If Fannie Mae owns your mortgage loan, you might be eligible for its Mortgage Release (deed in lieu) program. Under this program, a borrower who is eligible for a deed in lieu has three alternatives after finishing the deal:
  
  - moving out of the home right away.
• participating in a three-month shift lease with no lease payment required, or.
• entering into a twelve-month lease and paying lease at market rate.
  
  For additional information 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 relocation support.
  
  Should You Consider Letting the Foreclosure Happen?
  
  In some states, a bank can get a shortage judgment versus a property owner as part of a foreclosure or after that by submitting a separate suit. In other states, state law avoids a bank from getting a shortage judgment following a foreclosure. If the bank can't get a versus you after a foreclosure, you might be much better off letting a foreclosure happen instead of doing a deed in lieu of foreclosure that leaves you liable for a shortage.
  
  Generally, it may not be worth doing a deed in lieu of foreclosure unless you can get the bank to accept forgive or lower the deficiency, you get some cash as part of the transaction, 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 specific guidance about what to do in your specific situation, speak to a local foreclosure attorney.
  
  Also, you ought to think about the length of time it will take to get a brand-new mortgage after a deed in lieu versus a foreclosure. Fannie Mae, for instance, will buy loans made two years after a deed in lieu if there are extenuating situations, like divorce, medical bills, or a task layoff that caused you financial 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 four years after a deed in lieu.) On the other hand, the Federal Housing Administration (FHA) treats foreclosures, brief sales, and deeds in lieu the very same, generally making it's mortgage insurance available after three years.
  
  When to Seek Counsel
  
  If you need aid understanding the deed in lieu process or interpreting the documents you'll be needed to sign, you ought to consider speaking with a certified lawyer. A lawyer can also help you work out a release of your individual liability or a reduced shortage if needed.