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What is Deed In Lieu of Foreclosure?

A Deed in Lieu of Foreclosure is an option that can be taken to avoid foreclosure. The process requires the borrower turn over the property to the lender, thereby releasing any obligations the borrower may have under the mortgage. Both the lender and the borrower must enter in this process voluntarily. Typically, the process begins when the borrower sends a letter to the lender requesting that they enter into negotiations.

A Deed in Lieu of Foreclosure can offer advantages to both the borrower and the lender. Upon completion of the process, the borrower is immediately free of the debt connected to the defaulted loan. The borrower is able to avoid the foreclosure, and they are often given more generous terms then they would typically receive in a formal foreclosure process. A Deed in Lieu of Foreclosure can be advantageous to the lender because it saves the lender the time and cost associated with repossessing the property (this is also the reasoning behind cash for keys).

While a deed a lieu of foreclosure can be a great way for a borrower to remove themselves form a bad sitation, there are risks involed. Often, a lender may not be willing to proceed with a Deed in Lieu of Foreclosure if the outstanding amount of the loan exceeds the current market value of the property Additionally, junior creditors might hold liens on the property which could compliacte the process. It is reccommended that homeowners contact an experienced professional or real estate attorney before proceeding with a Deed in Lieu of Foreclosure.