What is a "deed in lieu of foreclosure"?

A "deed in lieu of foreclosure" refers to a legal agreement where a borrower transfers the ownership of their property back to the lender to satisfy a loan that is in default. This option is typically pursued by homeowners who are unable to keep up with their mortgage payments and wish to avoid the lengthy and costly foreclosure process. By giving the property back to the lender, the borrower can often mitigate the impact on their credit score and possibly avoid additional legal fees or liabilities associated with foreclosure.

This agreement allows both parties to manage a distressed situation more efficiently: the borrower relinquishes their property without undergoing foreclosure, while the lender reacquires the property, allowing them to sell it and recover some of the investment. In contrast, other options such as modifying a loan agreement, dealing with different types of mortgage loans, or refinancing solutions do not provide the same direct transfer of property ownership and legal resolution as a deed in lieu of foreclosure does.