DEED IN LIEU OF FORECLOSURE
In a Deed-in-Lieu of Foreclosure, the borrower/homeowner voluntarily surrenders (transfers) ownership of property to the mortgagee/servicer in full satisfaction of the amount due, provided that the title is free and clear of mortgages, liens and encumbrances. If there are small lien balances, it may be possible to negotiate. A deed-in-lieu can help the homeowner resolve a defaulted mortgage loan and avoid the emotional trauma and cost of foreclosure. Some lenders will provide the homeowner with possible cash relocation assistance. Before accepting a deed in lieu, most lenders will require the borrower to make a good faith effort to list and sell the property. When a deed in lieu is completed, the mortgage lender should provide the borrower with a Satisfaction of Mortgage document stating that the loan was fully satisfied. A borrower should consult with his or her accountant to discuss any possible income tax consequences from a deed-in-lieu.
If there are many junior or subordinate liens on a property, a lender will be unlikely to accept a deed in lieu of foreclosure. This is because those liens will need to be paid off or cut off by foreclosure before the lender will accept the property. In that event, a lender is more likely to pursue the foreclosure process. Some lenders offer an option called “cash for keys” that assists homeowners with their relocation costs in exchange for vacating the premises on an agreed-upon date and leaving it in a clean condition. In a cash for keys scenario the lender usually will complete the foreclosure process in order to cut off and remove all other liens so that the property can ultimately convey clean title to the property.