Definition
Deed in Lieu of Foreclosure
A deed in lieu is voluntarily transferring a home's title to the lender to satisfy the mortgage and avoid a foreclosure case. The owner walks away without an auction on their record — and without any equity the house had.
Lenders accept deeds in lieu selectively: they generally want clear title (no junior liens), a demonstrated hardship, and often evidence the home was first offered for sale. Some programs include relocation assistance ('cash for keys').
The decisive question is equity. A deed in lieu surrenders all of it, so it only makes sense when the loan balance is at or above the home's value. If a sale — even an as-is cash sale — would clear the mortgage with money left over, selling beats surrendering.
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