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What is a Deed in Lieu of Foreclosure?

At Southern Loan Servicing, we are here to help you learn about your options and make seller financing more accessible. Today, we’re covering a deed in lieu of foreclosure, which can offer some security for hesitant sellers/lenders.

Here’s what you need to know:

  • A deed in lieu of foreclosure is a legal arrangement where the homeowner voluntarily transfers ownership of their property back to the lender in exchange for the cancellation of their remaining mortgage debt. This can be used if they fall behind on payments or are no longer able to purchase the property.
  • This option can help homeowners avoid the negative effects of foreclosure on their credit score, as lenders can view it more favorably.
  • With seller financed loans investors may use this as a tool in conjunction with a large down payment, and personal guarantee to show the lender they are good for the loan, and that the seller will regain title without having to go through a lengthy and expensive foreclosure if the buyer stops paying.  
  • It may not be available or feasible for all sales, as it requires the lender’s consent and may have tax implications. You should weigh the potential benefits and drawbacks before pursuing a deed in lieu of foreclosure.

You can find a more in-depth explanation and answers to frequently asked questions here