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When a customer defaults on its mortgage, a lender has a variety of solutions readily available to it. Recently, lending institutions in addition to borrowers have significantly picked to pursue options to the adversarial foreclosure process. Chief among these is the deed in lieu of foreclosure (referred to as a "deed in lieu" for brief) in which the lending institution forgives all or the majority of the debtor's commitments in return for the customer voluntarily handing over the deed to the residential or commercial property.
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During these tough economic times, deeds in lieu offer lenders and customers many advantages over a traditional foreclosure. Lenders can decrease the uncertainties fundamental in the foreclosure procedure, reduce the time and cost it requires to recover possession, and increase the likelihood of receiving the residential or commercial property in better condition and in a more smooth manner together with an appropriate accounting. Borrowers can avoid pricey and lengthy foreclosure battles (which are normally not successful in the long run), handle continuing liabilities and tax implications, and put a more favorable spin on their credit and track record. However, deeds in lieu can also posture significant threats to the parties if the problems attendant to the procedure are not thoroughly thought about and the files are not properly drafted.

A deed in lieu ought to not be considered unless an expert appraisal values the residential or commercial property at less than the staying mortgage responsibility. Otherwise, there is the hazard of another creditor (or trustee in personal bankruptcy) claiming that the transfer is a fraudulent conveyance and, in any case, the borrower would certainly be unwilling to give up a residential or commercial property in which it might stand to recuperate some worth following a foreclosure sale. Also, a deed in lieu transaction must not be required upon a debtor