We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What is a Deed in Lieu of Foreclosure?

Mary McMahon
By
Updated May 17, 2024
Our promise to you
WiseGeek is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At WiseGeek, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

A deed in lieu of foreclosure is an agreement reached between a homeowner and a lender in which the homeowner turns over the deed to the home, and the lender agrees to halt foreclosure proceedings. Negotiating a deed in lieu of foreclosure agreement is a way to avoid foreclosure, but many people view it as a last resort, since it can have a negative impact on the homeowner's credit record. Also, a lender may not be willing to negotiate, as most lenders want cash, not real estate which they will have to manage or sell.

The terms of the agreement can vary considerably, and it is a good idea to firmly negotiate the terms so that both parties understand the agreement. As a general rule, in a deed in lieu of foreclosure settlement, the homeowner signs away the deed, giving the home to the lender, and the lender writes off the homeowner's debt, essentially canceling the mortgage.

However, there are some caveats. For example, a lender may agree to take possession, but it still holds the buyer responsible for the loan, which means that if the lender cannot sell the house for the necessary amount, the buyer will still be liable for the balance. If the debt is not settled with the deed, the deed in lieu of foreclosure will also show up as a black mark on the buyer's credit record, as the loan will be listed as being in default. The forgiven debt may also be subject to income tax, which is something to consider for people who struggle to pay their taxes.

For lenders, a deed in lieu of foreclosure helps to settle a situation fast, and protects them in case the buyer files for bankruptcy. It also tends to produce a property which is in better condition, since people who go through foreclosure proceedings tend to become less interested in caring for their properties, and some people even actively vandalize their properties out of anger, making the property harder to sell.

For homeowners, negotiating a deed in lieu of foreclosure can be used to settle the matter, allowing the buyer to start with a clean slate, if the negotiations are carried out well. It can be helpful to retain a lawyer to make sure that the debt will be forgiven when the deed is signed over. Of course, the agreement also means that the house needs to be vacated immediately, unlike in a foreclosure proceeding, where the homeowner typically has several months of warning to prepare.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a WiseGeek researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Discussion Comments
By anon76595 — On Apr 11, 2010

Thanks for the article.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

Learn more
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.