In one sentence
A negotiated transfer of a property from a defaulting borrower to the lender, avoiding a formal foreclosure.
The longer version
In a deed in lieu, the borrower voluntarily conveys the property to the lender to satisfy the debt, sidestepping the time and cost of foreclosure. Both sides negotiate terms, including any release of liability.
Deeds in lieu require careful diligence on liens and the property's condition, since the lender takes the asset directly, and they are documented like a modified closing.
Common questions
- What is a deed in lieu of foreclosure?
- A negotiated transfer of the property from a defaulting borrower to the lender, or its designee, in satisfaction of the debt, avoiding a formal foreclosure.
- What is the risk of a deed in lieu for the lender?
- Unlike a foreclosure, it does not wipe out junior liens. The lender takes title subject to them, so a title review is essential before accepting.
- Why would a borrower agree to a deed in lieu?
- To avoid the cost and publicity of foreclosure and often to obtain a release from deficiency liability or guaranty claims.
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