The Deed in Lieu of Foreclosure is a solution that some buyers choose when they're unable to make the mortgage payments on their homes. Instead of foreclosing on the house, the lending institution instead accepts the Deed and full rights to the property. In return, the lender agrees he won't bring about any foreclosure proceedings, and if any have been started, the lender will end them. Additionally, the lender also forgives any additional debts on the property if the sale or house value is not enough to cover it.

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The Deed in Lieu of Foreclosure can be offered by either the lender or the borrower. Most of the time, the lender offers it in the preliminary stages of the foreclosure process to save time and money. The borrower can then hand over all of the title as well as the responsibility for selling the property. The lender then records the deed with the local courthouse. Finally, the lender either sells the property or simply writes off the debt and maintains ownership of the property.

However, Deeds in Lieu of Foreclosure have become significantly less popular. Most lenders would rather have the money in hand rather than additional property to sell. Plus many properties also have second, third, and even fourth mortgages on them as well as home equity loans and liens. Having even one of these reduces the likelihood that a lender will accept the Deed in Lieu of Foreclosure, and in some states they cannot accept the Deed because it would be detrimental to the interests of the other party. In other states, the lender assumes all of the other debts and encumbrances, making it even less likely that the lender would choose this route. However, if the lender is the only one who has such an interest in the property, the Deed in Lieu of Foreclosure can be a good option.

For more help with foreclosure alternatives, talk to a real estate lawyer.

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Get started Ask a Lawyer a Question You'll hear back in one business day.