Also known as: deed in lieu of foreclosure · deed in lieu · deeds in lieu · DIL
Written by attorneys · grounded in primary & secondary sources — see below
A voluntary transfer of mortgaged property by the mortgagor to the mortgagee in full satisfaction of the underlying debt. The transfer must be supported by consideration in the form of debt discharge and must occur without duress or unfairness. The deed discharges the mortgage and may extinguish or preserve junior liens according to jurisdiction and agreement.
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David Dawson fell behind on payments to his mortgage lender after losing his job. He approached the lender and offered a deed conveying the house directly to the lender. The lender accepted the deed and released Dawson from the remaining debt balance, ending the mortgage without a foreclosure proceeding.
560 Ocean Club, L.P. owned multiple condominium units subject to mortgages held by Central Pennsylvania Savings Association. After filing for chapter 11 protection, the debtor executed deeds conveying four units back to the developer in satisfaction of the secured obligations. The transfers resolved the mortgage liens on those units without triggering foreclosure.
The discharge of the mortgagor's debt serves as the required consideration for the voluntary transfer.
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No. Whether junior liens are extinguished or preserved depends on the jurisdiction and the specific agreement between the parties.
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Lenders often accept the deed to avoid the time and expense of foreclosure while also forgoing any deficiency judgment against the borrower.
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…to unit 503 by purchasing the unit at a foreclosure sale and acquired title to unit 216 when the mortgagors gave it a quitclaim deed in lieu of foreclosure. Thereafter, when the association objected to Flagler Federal's attempt to lease the units, the bank filed suit seeking declaratory and injunctive relief. The trial court denied the bank's…