baidu.com
A deed in lieu of foreclosure is a loss mitigation (foreclosure avoidance) alternative, in addition to brief sales, loan adjustments, payment strategies, and forbearances. Specifically, a deed in lieu is a transaction where the house owner voluntarily transfers 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.
zhihu.com
In many cases, finishing a deed in lieu will launch the customer 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?

The initial step in obtaining a deed in lieu is for the debtor to request a loss mitigation bundle from the loan servicer (the company that handles the loan account). The application will need to be completed and together with documentation about the customer's earnings and expenditures consisting of:

- evidence of income (usually 2 recent pay stubs or, if the debtor is self-employed, a revenue and loss statement).

• current tax returns.
• a monetary statement, detailing month-to-month income and expenditures.
• bank declarations (normally 2 recent statements for all accounts), and.
• a difficulty letter or hardship affidavit.
  
  What Is a Hardship?
  
  A "hardship" is a scenario that is beyond the debtor's control that results in the debtor no longer having the ability to manage to make mortgage payments. Hardships that certify for loss mitigation factor to consider include, for example, job loss, decreased earnings, death of a spouse, illness, medical costs, divorce, interest rate reset, and a natural catastrophe.
  
  Sometimes, the bank will need the debtor to try to sell the home for its reasonable market price before it will consider accepting a deed in lieu. Once the listing period expires, assuming the residential or commercial property hasn't offered, the servicer will order a title search.
  
  The bank will generally just accept a deed in lieu of foreclosure on a very first mortgage, implying 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 very same bank holds both the first and the second mortgage on the home. Alternatively, a customer can pick to pay off any additional 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 set up for a brokers cost opinion (BPO) to figure out the fair market value of the residential or commercial property.
  
  To complete the deed in lieu, the debtor will be needed 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 regards to the agreement in between the bank and the customer and will include a provision that the debtor acted freely and voluntarily, not under coercion or pressure. This document may also include provisions resolving whether the deal is in full fulfillment 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 typically structured so that the deal satisfies the mortgage debt. So, with many deeds in lieu, the bank can't get a shortage judgment for the distinction in between the home's reasonable market price and the debt.
  
  But if the bank wishes to protect its right to look for a deficiency judgment, a lot of jurisdictions permit the bank to do so by clearly stating in the transaction documents that a balance remains after the deed in lieu. The bank generally needs to define the quantity of the deficiency and include this amount in the deed in lieu files or in a different agreement.
  
  Whether the bank can pursue a deficiency judgment following a deed in lieu likewise in some cases depends on state law. Washington, for example, 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 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 effectively a nonjudicial foreclosure, the debtor was entitled to defense under Washington's anti-deficiency laws.
  
  Mortgage Release Program Under Fannie Mae
  
  If Fannie Mae owns your mortgage loan, you might be qualified for its Mortgage Release (deed in lieu) program. Under this program, a borrower who is qualified for a deed in lieu has 3 choices after finishing the deal:
  
  - vacating the home right away.
• getting in into a three-month transition lease with no rent payment needed, or.
• participating in a twelve-month lease and paying rent at market rate.
  
  To learn more on requirements and how to take part in the program, go here.
  
  Similarly, if Freddie Mac owns your loan, you might be qualified for an unique deed in lieu program, which may consist of moving support.
  
  Should You Consider Letting the Foreclosure Happen?
  
  In some states, a bank can get a shortage judgment against a house owner as part of a foreclosure or after that by filing a separate lawsuit. 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 might be much better off letting a foreclosure take place rather than doing a deed in lieu of foreclosure that leaves you responsible for a deficiency.
  
  Generally, it may 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 money as part of the deal, or you receive additional time to remain in the residential or commercial property (longer than what you 'd get if you let the foreclosure go through). For particular advice about what to do in your particular situation, speak to a local foreclosure lawyer.
  
  Also, you ought to consider 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 purchase loans made 2 years after a deed in lieu if there are extenuating circumstances, like divorce, medical expenses, or a job layoff that caused you economic problem, compared to a three-year wait after a foreclosure. (Without extenuating scenarios, the waiting period for a Fannie Mae loan is seven years after a foreclosure or four 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, normally making it's mortgage insurance coverage offered after three years.
  
  When to Seek Counsel
  
  If you require assistance comprehending the deed in lieu process or interpreting the files you'll be required to sign, you should think about speaking with a qualified attorney. A lawyer can also help you negotiate a release of your individual liability or a minimized deficiency if required.