“Deed In Lieu Of Foreclosure”: What Does It Mean?


A “deed in lieu of foreclosure” literally means that the lender will take the deed to a property “in lieu” (i.e. instead) of foreclosing on the loan when a borrower is unable to continue repayments. In other words, the borrower simply hands the property over to the lender and walks away from the loan.

A borrower may agree to this if they don’t have much equity in the property and are not likely to be able to make up their default and continue making payments. A deed in lieu of foreclosure agreement allows the borrower to avoid the whole foreclosure process, thereby saving legal fees, stress and potential public embarrassment.

It also means the borrower will not have a foreclosure recorded on their credit history, which is almost certain to hinder them in borrowing money in the future.

From the lender’s perspective, a deed in lieu of foreclosure saves both time and legal fees. The sooner they can take possession of the property, the sooner they can sell it and recover their money.

A second benefit to the lender is the potential to make a profit on the sale of the property. If the lender is able to sell the property for more than they are owed, they get to pocket the extra funds.

A lender cannot force a borrower into a deed in lieu of foreclosure agreement. Both parties must consent before the deal can go ahead, otherwise the lender must revert to the normal process and procedures of foreclosure.

Not all US states allow deed in lieu of foreclosure, as there is an obvious potential for abuse. In the past, some lenders have been accused of engaging in so-called “strategic foreclosure”, coercing uninformed borrowers into foreclosure and robbing them of any equity they had built up in the property.

Darren Collins runs Foreclosure HQ [http://www.Foreclosure-HQ.com]. To learn more about the foreclosure process, visit that site’s General Foreclosure Information [http://www.foreclosure-hq.com/general/] section.

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Author: Piyawut Sutthiruk

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