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When a borrower defaults on its mortgage, a lender has a number of treatments readily available to it. Recently, loan providers as well as customers have progressively picked to pursue options to the adversarial foreclosure procedure. Chief among these is the deed in lieu of foreclosure (referred to as a "deed in lieu" for short) in which the lender forgives all or the majority of the debtor's responsibilities in return for the customer willingly turning over the deed to the residential or commercial property.

During these challenging economic times, deeds in lieu deal loan providers and debtors numerous benefits over a traditional foreclosure. Lenders can reduce the uncertainties fundamental in the foreclosure process, minimize the time and expenditure it requires to recuperate belongings, and increase the likelihood of receiving the residential or commercial property in much better condition and in a more seamless manner together with a correct accounting. Borrowers can avoid expensive and drawn-out foreclosure battles (which are normally unsuccessful in the long run), manage continuing liabilities and tax ramifications, and put a more favorable spin on their credit and track record. Nevertheless, deeds in lieu can likewise posture significant dangers to the celebrations if the issues attendant to the procedure are not thoroughly considered and the documents are not correctly prepared.
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A deed in lieu should not be considered unless a professional appraisal values the residential or commercial property at less than the staying mortgage responsibility. Otherwise, there is the hazard of another lender (or trustee in insolvency) declaring that the transfer is a fraudulent conveyance and, in any case, the borrower would obviously hesitate to give up a residential or commercial property in which it might stand to recover some value following a foreclosure sale. Also, a deed in lieu deal should not be required upon a borrower