What is a deed in lieu of foreclosure?

A deed in lieu of foreclosure refers to a legal process wherein a borrower voluntarily transfers the title of their property back to the lender to avoid the lengthy and complicated foreclosure process. This occurs when the mortgagor is in default on their mortgage payments and wishes to relinquish their property to the lender, rather than go through a traditional foreclosure.

By choosing this option, the borrower often seeks to mitigate the negative impact on their credit score and to take control of a challenging financial situation. This arrangement can benefit both parties: the lender can acquire the property more quickly and without the need for legal proceedings, and the borrower can avoid the stress of formal foreclosure.

In contrast, dividing property among heirs deals with estate distribution, transferring property after foreclosure pertains to actions taken after a property has been repossessed, and a mortgage document is simply a legal instrument that secures a loan, none of which accurately describe a deed in lieu of foreclosure.