The Deed-in-Lieu of Foreclosure Process

Sometimes, when homeowners are in a situation where they simply can’t save their mortgages, we can still advise them to avoid foreclosure. A deed-in-lieu of foreclosure (frequently referred to as simply a deed-in-lieu) allows a borrower to surrender the property to the lender in exchange for getting out of all mortgage repayment obligations.

A deed-in-lieu of foreclosure can be a good option for both parties; the borrower avoids a foreclosure on their credit record, and the lender gets the property without the time, hassle, and expense of pursuing a foreclosure.

Here’s an example of how the deed-in-lieu process works. This isn’t a guide to follow; your situation may be unique, and you may need help from a qualified attorney. doesn’t provide any kind of legal or tax advice, so nothing here should be taken as such.

  1. The borrower reaches out to the lender. The lender’s loss mitigation department is whom the borrower speaks with about getting a deed-in-lieu arranged. The lender will request more information from the borrower, most likely in writing.
  2. The borrower continues to live in the house, paying all utilities, Homeowners Association dues, taxes and etc., while pursuing the deed-in-lieu.
  3. The borrower completes the “hardship package”, which provides the lender with the written documentation they need. The borrower will likely be required to include bank statements, a hardship letter, tax returns, and pay stubs.
  4. An asset manager in the lender’s loss mitigation department will take up to 90 days to assess the home’s value and approve the request for the deed-in-lieu. Some options may be presented to the borrower; move out of the home right away, stay for up to 90 days rent-free, or pay to lease the home for up to 12 months.
  5. The borrower will sign documents prior to the closing of the property transfer. After closing, the borrower now has no further obligation to make payments toward the property.
  6. The borrower should leave the home clean and in good repair. In some cases, the lender will provide some financial assistance for the purpose of helping the family relocate; borrowers should ask about this early on if they need this kind of help, and obtain a copy of the agreed upon offer. Some lenders identify this program as a transition assistance program or cash-for-keys.
  7. The borrower may use the time after the deed-in-lieu to improve his/her credit score, pay down existing debts, and consider the opportunity for home ownership again in the future. HUD-approved housing counseling agencies, like, offer pre-purchase counseling to discuss those options.

Fannie Mae has more information about deed-in-lieu of foreclosure at its “Know Your Options” website, Mortgage Release™: Fannie Mae. Borrowers are always welcome to call us for free, one-on-one housing counseling and advice, including questions about the deed-in-lieu process. We don’t provide legal or tax advice, but we can help you understand your options and prepare you for whatever path you choose.