When a borrower defaults on its mortgage, a loan provider has a number of remedies readily available to it. In the last few years, loan providers as well as customers have actually increasingly picked to pursue alternatives to the adversarial foreclosure process. Chief amongst these is the deed in lieu of foreclosure (described as a "deed in lieu" for brief) in which the lender forgives all or many of the debtor's obligations in return for the customer voluntarily handing over the deed to the residential or commercial property.

During these challenging economic times, deeds in lieu deal lending institutions and debtors numerous benefits over a conventional foreclosure. Lenders can diminish the unpredictabilities intrinsic in the foreclosure process, minimize the time and cost it takes to recuperate ownership, and increase the probability of receiving the residential or commercial property in much better condition and in a more smooth manner together with a proper accounting. Borrowers can avoid expensive and lengthy foreclosure fights (which are normally unsuccessful in the long run), handle continuing liabilities and tax ramifications, and put a more positive spin on their credit and credibility. Nevertheless, deeds in lieu can also present considerable threats to the parties if the issues attendant to the process are not completely considered and the files are not properly drafted.

A deed in lieu should not be considered unless an expert appraisal values the residential or commercial property at less than the staying mortgage responsibility. Otherwise, there is the threat of another lender (or trustee in bankruptcy) declaring that the transfer is a deceitful conveyance and, in any case, the debtor would undoubtedly hesitate to relinquish a residential or commercial property in which it may stand to recover some worth following a foreclosure sale. Also, a deed in lieu deal should not be forced upon a customer