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A deed in lieu of foreclosure is a loss mitigation (foreclosure avoidance) choice, together with brief sales, loan modifications, payment plans, 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 many cases, completing a deed in lieu will launch the debtor from all commitments 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 first action in getting a deed in lieu is for the customer to request a loss mitigation bundle from the loan servicer (the business that manages the loan account). The application will need to be completed and submitted in addition to paperwork about the debtor's income and costs including:

- evidence of income (normally 2 current pay stubs or, if the customer is self-employed, a revenue and loss statement).

• recent tax returns.
• a financial declaration, detailing monthly earnings and expenses.
• bank declarations (generally two current declarations for all accounts), and.
• a difficulty letter or difficulty affidavit.
  
  What Is a Hardship?
  
  A "challenge" is a circumstance that is beyond the debtor's control that results in the borrower no longer having the ability to manage to make mortgage payments. Hardships that certify for loss mitigation factor to consider consist of, for instance, task loss, lowered earnings, death of a spouse, disease, medical expenditures, divorce, rate of interest reset, and a natural catastrophe.
  
  Sometimes, the bank will require the customer to attempt to offer the home for its reasonable market price before it will consider a deed in lieu. Once the listing period ends, assuming the residential or commercial property hasn't sold, the servicer will purchase a title search.
  
  The bank will usually just accept a deed in lieu of foreclosure on a first mortgage, implying there need to be no extra liens-like 2nd mortgages, judgments from financial institutions, or tax liens-on the residential or commercial property. An exception to this basic guideline is if the exact same bank holds both the 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 organize for a brokers price opinion (BPO) to determine the reasonable market price of the residential or commercial property.
  
  To finish the deed in lieu, the customer will be required 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 customer and will include a provision that the customer acted freely and willingly, not under browbeating or duress. This document might likewise consist of provisions dealing with whether the deal is in complete complete 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 typically structured so that the transaction pleases the mortgage debt. So, with the majority of deeds in lieu, the bank can't get a deficiency judgment for the difference in between the home's reasonable market value and the financial obligation.
  
  But if the bank desires to protect its right to seek a deficiency judgment, many jurisdictions allow the bank to do so by clearly stating in the transaction documents that a balance stays after the deed in lieu. The bank usually needs to define the quantity of the deficiency and include this quantity in the deed in lieu documents or in a different contract.
  
  Whether the bank can pursue a deficiency judgment following a deed in lieu also in some cases depends upon state law. Washington, for example, has at least one case that specifies a loan holder might not acquire a deficiency judgment after a deed in lieu, even if the consideration is less than a complete 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 effectively 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 eligible for its Mortgage Release (deed in lieu) program. Under this program, a borrower who is eligible for a deed in lieu has 3 options after completing the transaction:
  
  - vacating the home right away.
• entering into a three-month shift lease without any 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 might be eligible for an unique deed in lieu program, which might include moving help.
  
  Should You Consider Letting the Foreclosure Happen?
  
  In some states, a bank can get a shortage judgment versus a homeowner as part of a foreclosure or after that by filing 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 deficiency judgment versus you after a foreclosure, you may be much better off letting a foreclosure take place instead of doing a deed in lieu of foreclosure that leaves you accountable for a shortage.
  
  Generally, it might not deserve doing a deed in lieu of foreclosure unless you can get the bank to accept forgive or reduce the shortage, you get some cash as part of the transaction, 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 guidance about what to do in your specific circumstance, talk with a local foreclosure legal representative.
  
  Also, you ought to think about for how long it will take to get a new mortgage after a deed in lieu versus a foreclosure. Fannie Mae, for instance, will purchase loans made 2 years after a deed in lieu if there are extenuating scenarios, like divorce, medical expenses, or a job layoff that triggered 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 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 very same, normally making it's mortgage insurance offered after three years.
  
  When to Seek Counsel
  
  If you need aid comprehending the deed in lieu procedure or translating the documents you'll be needed to sign, you should consider speaking with a certified lawyer. An attorney can also help you negotiate a release of your individual liability or a reduced shortage if required.