A deed in lieu of foreclosure is a loss mitigation (foreclosure avoidance) option, along with brief sales, loan modifications, repayment plans, and forbearances. Specifically, a deed in lieu is a deal where the homeowner voluntarily 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.
apartmenttherapy.com
For the most part, finishing a deed in lieu will launch the customer from all responsibilities 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 ask for a loss mitigation package from the loan servicer (the company that handles the loan account). The application will need to be submitted and sent along with paperwork about the customer's earnings and expenditures including:

- evidence of income (typically 2 recent pay stubs or, if the borrower is self-employed, a revenue and loss declaration).

• current income tax return.
• a financial statement, detailing regular monthly earnings and costs.
• bank declarations (usually 2 current declarations for all accounts), and.
• a challenge letter or hardship affidavit.
  
  What Is a Difficulty?
  
  A "hardship" is a circumstance that is beyond the borrower's control that results in the customer no longer being able to afford to make mortgage payments. Hardships that receive loss mitigation factor to consider consist of, for example, job loss, lowered earnings, death of a spouse, health problem, medical expenditures, divorce, interest rate reset, and a natural disaster.
  
  Sometimes, the bank will need the debtor to try to offer the home for its fair market price before it will think about accepting a deed in lieu. Once the listing duration ends, 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 very first mortgage, meaning there must 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 same bank holds both the first and the second mortgage on the home. Alternatively, a debtor can select to settle any additional liens, such as a tax lien or judgment, to help with the deed in lieu deal. If and when the title is clear, then the servicer will schedule a brokers rate viewpoint (BPO) to determine the reasonable market price of the residential or commercial property.
  
  To finish the deed in lieu, the borrower will be needed 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 terms of the contract between the bank and the customer and will include a provision that the borrower acted easily and willingly, not under coercion or pressure. This document may likewise include arrangements resolving whether the transaction remains in full satisfaction of the debt or whether the bank can seek a deficiency judgment.
  
  Deficiency Judgments Following a Deed in Lieu of Foreclosure
  
  A deed in lieu is often structured so that the transaction pleases the mortgage financial obligation. So, with the majority of 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 desires to maintain its right to seek a deficiency judgment, the majority of jurisdictions permit the bank to do so by clearly stating in the deal documents that a balance remains after the deed in lieu. The bank usually requires to define the amount of the deficiency and include this quantity in the deed in lieu documents or in a separate arrangement.
  
  Whether the bank can pursue a deficiency judgment following a deed in lieu likewise sometimes depends upon state law. Washington, for example, has at least one case that specifies a loan holder might not get a shortage judgment after a deed in lieu, even if the factor to consider is less than a full discharge of the financial obligation. (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 protection 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 debtor who is eligible for a deed in lieu has 3 alternatives after completing the deal:
  
  - moving out of the home instantly.
• participating in a three-month shift lease without any rent payment required, or.
• getting in into a twelve-month lease and paying lease 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 a special deed in lieu program, which might consist of 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 submitting a different claim. In other states, state law prevents a bank from getting a shortage 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 take place instead of doing a deed in lieu of foreclosure that leaves you accountable for a shortage.
  
  Generally, it might not be worth doing a deed in lieu of foreclosure unless you can get the bank to accept forgive or reduce the deficiency, you get some cash as part of the transaction, or you receive 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 advice about what to do in your specific circumstance, speak with a regional foreclosure lawyer.
  
  Also, you must think about for how long it will require to get a brand-new mortgage after a deed in lieu versus a foreclosure. Fannie Mae, for example, will buy loans made two years after a deed in lieu if there are extenuating situations, like divorce, medical costs, or a job layoff that triggered you financial trouble, compared to a three-year wait after a foreclosure. (Without extenuating situations, 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, short sales, and deeds in lieu the very same, typically making it's mortgage insurance offered after 3 years.
  
  When to Seek Counsel
  
  If you need aid comprehending the deed in lieu procedure or analyzing the documents you'll be to sign, you need to consider seeking advice from a qualified lawyer. An attorney can also help you negotiate a release of your personal liability or a lowered shortage if required.
  ghar.realtor