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A deed in lieu of foreclosure is a loss mitigation (foreclosure avoidance) alternative, together with brief sales, loan modifications, repayment plans, and forbearances. Specifically, a deed in lieu is a transaction 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 concurring not to pursue a foreclosure.

For the most part, finishing a deed in lieu will launch the borrower from all responsibilities and liability under the mortgage contract 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 initial 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 manages the loan account). The application will need to be submitted and submitted along with documentation about the debtor's income and costs consisting of:

- proof of earnings (typically two recent pay stubs or, if the customer is self-employed, a revenue and loss declaration).

• current income tax return.
• a financial declaration, detailing month-to-month earnings and costs.
• bank declarations (usually 2 recent statements for all accounts), and.
• a difficulty letter or difficulty affidavit.
  
  What Is a Difficulty?
  
  A "hardship" is a scenario that is beyond the borrower's control that leads to the customer no longer being able to manage to make mortgage payments. Hardships that certify for loss mitigation consideration consist of, for instance, task loss, lowered earnings, death of a spouse, illness, medical expenses, divorce, rate of interest reset, and a natural disaster.
  
  Sometimes, the bank will require the customer to try to offer the home for its fair market value before it will think about accepting a deed in lieu. Once the listing duration expires, assuming the residential or commercial property hasn't sold, the servicer will order a title search.
  
  The bank will typically just accept a deed in lieu of foreclosure on a first mortgage, meaning there should be no additional liens-like 2nd mortgages, judgments from creditors, or tax liens-on the residential or commercial property. An exception to this general rule is if the exact same bank holds both the first and the second mortgage on the home. Alternatively, a borrower can pick to pay off any additional 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 organize for a brokers cost opinion (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 document 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 contract between the bank and the customer and will include a provision that the borrower acted freely and willingly, not under browbeating or pressure. This document might also include arrangements resolving whether the deal is in full fulfillment 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 typically structured so that the deal pleases the mortgage financial obligation. So, with a lot of deeds in lieu, the bank can't get a deficiency judgment for the difference in between the home's reasonable market price and the financial obligation.
  
  But if the bank wishes to protect its right to seek a deficiency judgment, most jurisdictions allow the bank to do so by plainly specifying in the deal files that a balance remains after the deed in lieu. The bank generally needs to define the quantity of the deficiency and include this quantity in the deed in lieu files or in a separate contract.
  
  Whether the bank can pursue a deficiency judgment following a deed in lieu likewise often depends upon state law. Washington, for example, has at least one case that specifies a loan holder may not acquire a shortage 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 due to the fact that the deed in lieu was effectively a nonjudicial foreclosure, the debtor 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 qualified 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:
  
  - moving out of the home instantly.
• entering into a three-month shift lease without any lease payment required, or.
• getting in 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 eligible for an unique deed in lieu program, which might consist of relocation 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 or after that by filing a different suit. In other states, state law prevents a bank from getting a deficiency judgment following a foreclosure. If the bank can't get a shortage judgment against you after a foreclosure, you may be much better off letting a foreclosure occur instead of doing a deed in lieu of foreclosure that leaves you responsible for a deficiency.
  
  Generally, it might not be worth doing a deed in lieu of foreclosure unless you can get the bank to accept forgive or decrease the deficiency, you get some cash as part of the deal, or you get extra time to remain in the residential or commercial property (longer than what you 'd get if you let the foreclosure go through). For specific advice about what to do in your particular scenario, speak to a regional foreclosure attorney.
  
  Also, you need to think about 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 buy loans made two years after a deed in lieu if there are extenuating circumstances, like divorce, medical expenses, or a task layoff that triggered you economic 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) treats foreclosures, short sales, and deeds in lieu the same, generally making it's mortgage insurance available after three years.
  
  When to Seek Counsel
  
  If you require assistance comprehending the deed in lieu process or translating the documents you'll be required to sign, you need to consider talking to a certified attorney. A lawyer can also help you negotiate a release of your individual liability or a minimized shortage if necessary.