Deed in lieu of foreclosure

A deed in lieu of foreclosure is an arrangement where the homeowner voluntarily turns over ownership of the property to the lender to avoid the foreclosure process. The lender takes the deed, and in exchange releases the borrower from some or all of the mortgage debt.

Lenders usually agree to a deed in lieu only when the title is otherwise clean. A second mortgage, a judgment lien or unpaid taxes can block it, because the lender would take the property subject to those liens. The owner gives up the house and moves out, though some servicers offer relocation money, often called cash for keys. The CFPB tells borrowers to ask the lender to waive any remaining deficiency, get the waiver in writing, and check for a possible tax bill on forgiven debt. An owner who is asking the lender about a deed in lieu has usually decided to give up the house, and may be open to a sale that pays off the loan and leaves them some cash, especially if there is equity the lender would otherwise keep. A HUD-approved housing counselor can explain the options.

Source: consumerfinance.gov