Deed in Lieu of Foreclosure

Deed in Lieu of Foreclosure


A deed in lieu of foreclosure is an agreement between the home owner and the bank which enables the home owner to voluntarily give the bank back the home without the formality of a foreclosure.


  • Prevents final foreclosure.
  • Potential release from large debt.
  • Less impact on credit.
  • Bank may give “cash for keys.”

              –  Cash for keys may occur when the lender agrees to pay the home owner to move out at a specified time

                   in exchange for payment for the return of the keys.

  • Homeowner may be allowed to rent home from lender.
  • Homeowner may be able to negotiate to avoid a deficiency judgment.
  • May qualify to get a new mortgage through Fannie Mae in 4 years – as opposed to 5 years for Foreclosure

           –     There may be an exception after 2 years.  With foreclosure, minimum for exception is 3 years.


  • The foreclosure will still appear on your credit report.
  • Deed in lieu of foreclosure will likely be treated the same as foreclosure when applying for a new mortgage loan.
  • Home owner will likely still receive 1099 with the bank’s write off of debt showing as income for the home             owner.
  • Unlikely to work if there is more than one mortgage or any other liens or judgments on a property.


Why would a lender accept a deed in lieu of foreclosure?

A deed in lieu of foreclosure prevents the lender from having to go through the time and expense of a foreclosure.


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