What is a Deed in Lieu of Foreclosure?

It is a deed instrument that transfers the right of ownership in a property from the mortgagor (borrower) to the mortgagee (lender). Borrowers who are in default may choose this option for avoiding a foreclosure. In such cases, the borrower surrenders the deed to the property, typically the home, to the lender in exchange for the release of all obligations under the mortgage.

How Does a Deed in Lieu of Foreclosure Work?

It is a title transferring document signed by the homeowner and notarized by a notary public. Both the parties must agree to this arrangement willingly and in good faith. Usually, this is the last resort for a homeowner to avoid a foreclosure after exhausting all other option. A homeowner agrees to sign such an agreement only when they know there are no options left for them to retain the ownership right of the home. A homeowner needs to surrender the house and move out from it after signing the deed as he or she loses the ownership of the home right away. Homeowners opt for this option to avoid the embarrassment of foreclosure as this agreement is done more privately. It also saves them the expenses and time usually associated with a foreclosure process.