What is a deed-in-lieu of foreclosure?

Short answer

A of is a voluntary transfer of the home to the lender so a foreclosure sale does not go forward. The CFPB says it may be an option if you need to leave the home and want to avoid foreclosure. Confirm in writing that the arrangement covers the full remaining mortgage balance.

Full explanation

In a deed-in-lieu, you give the lender title instead of going through foreclosure. The CFPB says that path may help some borrowers avoid a foreclosure and avoid remaining responsible for an unpaid balance — but only if the agreement actually covers everything still owed. Ask for that coverage in writing. This page does not say a deed-in-lieu is always better or worse than a foreclosure.

Contact the lender or servicer before a foreclosure starts and ask what options exist, including options that might let you stay in the home. If you are considering a deed-in-lieu, the CFPB also says to ask about relocation help through private programs sometimes called cash-for-keys.

In some states you can still owe a deficiency — the gap between the property value and the remaining loan balance. You can ask the lender to waive that amount and, if it agrees, keep the waiver in writing. A tax consequence can still arise, so a tax professional or attorney may be appropriate. HUD-approved housing counseling is available through the CFPB Find a Housing Counselor tool. State deficiency and foreclosure rules can change the outcome.

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