Real Estate Attorneys

Deed in Lieu

A Deed in Lieu is a voluntary repossession. You sign over ownership of your property and the lender agrees to cancel the mortgage of record. In other words, the typical deed in lieu of foreclosure is a consensual transaction. You have complied with a list of the Lender’s requirements, the lender has evaluated your facts and circumstances and after deliberation, time and a bit of luck, the Lender agrees to take back the real estate instead of suing you.

Although the process seems simple, it isn’t as always as clean-cut as it may appear. First, the Lender may reserve the right to seek a deficiency judgment against you. Or, in the alternative, sometimes a Lender will accept a Deed in Lieu with an accompanying payment from you to offset some of the Lender’s loss. Once the Lender takes possession of the property it will be put up for sale. Unless otherwise agreed to (in writing), the Lender may come after you for the unpaid debt resulting from the sale. Some Lenders may accept a promissory note for the deficiency. Second, the Lenders are often reluctant to accept a Deed in Lieu because the Deed in Lieu does not “cleanse” title as a foreclosure would. Therefore in accepting a Deed in Lieu, a Lender accepts title with all junior liens and with all faults (i.e. HOA liens, 2nd mortgages, etc). Additionally, as a practical matter, if you can’t sell the property, the Lender is not likely to be any more successful. Finally, there are usually certain tax consequences.

You should be aware, giving a Deed-in-Lieu to your Lender is looked upon the same way as a foreclosure would be and will be very damaging to your credit. It will also significantly limit your ability to get credit in the future.

You may have significant tax consequences as a result of a Deed in Lieu because in the event the Lender “writes off” the deficiency and issues you a 1099C, this is seen as debt forgiveness by the IRS and may be treated as income. Please consult with your tax advisor for specific details regarding your situation.


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