What is a Deed-in-Lieu?
A Freddie Mac Standard Deed-in-Lieu of Foreclosure (“deed-in-lieu of foreclosure”) is a Borrower’s voluntary conveyance of clear and marketable title of the property to Freddie Mac in exchange for a discharge of debt.
If a borrower’s hardship is permanent and they are unable to be approved for any retention options or a short sale option, then the servicer should review the borrower for a deed-in-lieu of foreclosure. A faster and simpler process that enables struggling homeowners to exit gracefully from their homes.
The Freddie Mac Standard Deed-in-Lieu simplifies and streamlines the transaction by
- Avoiding Foreclosure
- Offering up to $3,000 in relocation assistance for homeowners who meet certain requirements
- Speeding up the decision-making process by delegating approval of authority to servicers
All borrowers are eligible for a DIL under the following conditions:
- A borrower who does not meet the requirements for a Streamlined Deed-in-Lieu of Foreclosure must be experiencing or have experienced one of the eligible hardships listed in Guide Section 9202.2(a)
- The Borrower must be able to convey clear and marketable title to the Mortgaged Premises to Freddie Mac
- If the Borrower is not Delinquent, has not acquired a new Mortgage in the six months preceding the Borrower’s Delinquency or,
- if the Borrower is current, in the six months preceding the evaluation of the Borrower for a deed-in-lieu of foreclosure.
- The Borrower is only permitted to have obtained a new Mortgage if the Borrower’s eligible hardship was distant employment transfer.
ExceptionsThere are some situations where the servicer should submit a DIL recommendation to Freddie Mac.
- If the property is condemned and/or BPO shows property has been poorly maintained, has structural/foundation problems, or needs major repairs.
- For situations where a Borrower does not meet the eligibility requirements for a deed-in-lieu of foreclosure and the Servicer feels a deed-in-lieu of foreclosure may be the best option for addressing the Delinquency. Servicer should also submit a complete Borrower Response Package in this instance.
However, unless notified by Freddie Mac, all Servicers are delegated to approve a deed-in-lieu of foreclosure that meets the eligibility requirements of Guide Section 9209.2(a)
Borrower documentation is based on delinquency. Borrowers who are greater than 18 months delinquent should be evaluated for a Streamlined DIL.
|The Mortgage delinquency status at of the time of evaluation is...||The Servicer must...|
|Current or less than 90 days delinquent||
Evaluate the Borrower based on a complete Borrower Response Package (BPR) as defined in Guide Section 9102.5.
Note: If the Mortgage is current or less than 60 days delinquent, the Servicer must determine that the Borrower's monthly payment is in non-retention imminent default per Guide Section 9209.3(c).
|Between 90 days and 18 months delinquent||Evaluate the Borrower based on a complete BRP, unless one of the following conditions applies:
AND become 60 days or more delinquent within the first 12 months of the effective date of the modification without curing the Delinquency
In these cases, the Servicer must evaluate the Borrower for a Streamlined Deed-in-Lieu of Foreclosure ("Streamlined DIL").
|Greater than 18 months delinquent||Evaluate the Borrower for a Streamlined DIL.
A Streamlined DIL is a Standard Deed-in-Lieu of Foreclosure where the Servicer is not required to obtain the Borrower Response Package or to verify an eligible hardship
Borrower Contributions Toward the Deficiency
Determining Cash Contribution
If the Servicer determines that
- the Borrower’s Cash Reserves exceed $10,000 or
- the Borrower’s housing expense-to-income (HTI) ratio is less than or equal to 40%,
The Servicer must request a cash contribution in accordance with the requirements as outlined in Guide Section 9209.4.
The Servicer must verbally confirm the assets reported on Form 710, Mortgage Assistance Application and reconcile any differences with documentation following the procedure in Guide Section 9202.3. A Servicer may negotiate contribution amounts less than the initial contribution requests, which must be determined in accordance with the contribution formula Guide Section 9209.4.
When a Servicer negotiates a cash contribution that is less than the initial request, the Servicer must document the reason for its decision in the Mortgage file and note the specific financial circumstances that limit the Borrower’s ability to contribute towards the deficiency.
Unless Freddie Mac has delegated authority with the MI or communicates otherwise, if the Mortgage is covered by mortgage insurance and the MI requires a contribution from the Borrower that is greater than the contribution limits required by this section in order to approve the Freddie Mac Standard Deed-in-Lieu of Foreclosure (“deed-in-lieu of foreclosure”), the Servicer must require the Borrower to make the contribution required by the MI as a condition of approval.
Borrowers are not required to make a contribution in the following instances:
- Borrowers who are service members with Permanent Change of Station (PCS) orders who are 90 or more days delinquent. The property securing the Mortgage is or was previously the Borrower’s Primary Residence where the transfer or new employment location is greater than 50 miles one-way from the property securing the Mortgage being evaluated.
- Borrowers who qualify for a Streamlined Deed-in-Lieu of Foreclosure (refer to Guide Section 9209.3)
- Applicable law prohibits requesting or receiving a contribution
If the servicer has determined that the borrower is not required to make a financial contribution toward the deficiency, then the borrower is eligible to receive up to $3,000 in relocation assistance as long as the property was owner occupied at time of servicer evaluation (verified by a copy of the BPO). Consult Guide Section 9209.2 for specification on borrower relocation assistance.
After the servicer confirms borrower meets all eligibility requirement for a deed-in-lieu review:
- Servicer must obtain an interior property valuation via BPODirect. (Guide Section 9202.17)
- Ensure that the property valuation is no more than 90 days old as of the date of the DIL evaluation decision.
- Once the BPO is received, review the property condition and verify it meets the condition requirements described in Guide Section 9209.2(c).
Servicers must communicate with the borrower in a timely manner. Please follow the communication timelines for deeds-in-lieu listed in Guide Section 9209.6.
Before the deed-in-lieu is finalized, the servicer must complete the final checklist:
- Ensure the borrower meets all eligibility requirements and negotiates a borrower contribution, if applicable.
- Payments to subordinate mortgage liens must be resolved
- Servicer is authorized to pay subordinate mortgage holders an aggregate amount of $6,000.
- Payment is contingent upon agreement by all mortgage holders to release their Mortgages and waive all rights to seek a deficiency judgment against the borrower.
- Obtain clear and marketable title to the property.
Closing, Reporting, and Remittance Requirements
To close in Freddie Mac’s systems, complete the following steps once servicer has received the executed deed:
- Report the transaction to Freddie Mac via the Freddie Mac Foreclosure Sale Reporting tool as a foreclosure sale/deed-in-lieu of foreclosure withing one Business Day of receiving executed deed.
- Within five Business Days of receiving the executed deed or lease, forward the following documents
- Report the Mortgage to Freddie Mac via the Freddie Mac Loan Level Reportingtool as a Transfer to REO by the end of the Accounting Cycle in which the Servicer receives the executed deed or lease and ensure that the:
- Ending gross UPB is the ending balance of the Mortgage
- Principal due field is zero
- REO acquisition date is the date the deed or lease was executed
- DDLPI reflects the due date of the last fully paid installment
- Complete the “Deed-in-Lieu Settlement” screen in Workout Prospector - Servicers MUST always enter the Freddie Mac data into Workout Prospector (WP) or Resolve.
- Follow remittance and reporting guidelines as per Guide Section 9209.8.