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When a customer defaults on its mortgage, a loan provider has a number of remedies readily available to it. In current years, lending institutions along with debtors have progressively picked to pursue options to the adversarial foreclosure process. Chief amongst these is the deed in lieu of foreclosure (referred to as a "deed in lieu" for short) in which the lending institution forgives all or many of the debtor's commitments in return for the debtor willingly turning over the deed to the residential or commercial property.

During these hard economic times, deeds in lieu deal loan providers and borrowers many benefits over a traditional foreclosure. Lenders can decrease the uncertainties fundamental in the foreclosure process, lower the time and expenditure it requires to recuperate belongings, and increase the likelihood of receiving the residential or commercial property in much better condition and in a more seamless manner together with a proper accounting. Borrowers can avoid expensive and protracted foreclosure fights (which are generally not successful in the long run), manage continuing liabilities and tax implications, and put a more positive spin on their credit and track record. Even so, deeds in lieu can likewise pose significant risks to the parties if the issues attendant to the procedure are not thoroughly thought about and the files are not effectively 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 risk of another lender (or trustee in bankruptcy) declaring that the transfer is a deceitful conveyance and, in any case, the debtor would obviously 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 transaction should not be forced upon a borrower