Real Estate Definition: What is a Deed in Lieu of Foreclosure?

Real Estate Definition: What is a Deed in Lieu of Foreclosure?

Richard Fonfrias, J.D.
Chicago’s Financial Rescue & Bankruptcy Lawyer
Fonfrias Law Group, LLC


A “Deed in lieu of foreclosure” is a deed given to the lender (often, a bank) by a borrower (often, a homeowner) who is in default so the borrower can avoid foreclosure. It roughly translates to mean a deed given so the homeowner can avoid foreclosure.

The borrower benefits in several ways:
1. It immediately releases the borrower from obligations under the defaulted loan.
2. The borrower avoid the publicity associated with a foreclosure action.
3. The borrower likely gets better terms than he would receive in a foreclosure.
4. The negative impact on the borrower’s credit is less than a foreclosure would be.

The lender benefits in at least two ways:
1. The time and cost involved with repossessing the home are greatly reduced.
2. The risk of borrower revenge from theft and vandalism is greatly reduced.

The deed in lieu option is not so attractive to the lender if there are junior liens against the property. In that case, the lender will likely prefer to clean the title through a foreclosure action rather than assume the liability of junior liens from the owner.

The criteria for a deed in lieu of foreclosure are these:
1. The mortgage must be against the real estate being handed over.
2. Both parties must be acting in good faith and willingly.
3. The total consideration for the agreement must be worth at least the fair market value of the real estate being transferred.

Often, lenders will not move forward on a deed in lieu of foreclosure until they get a written offer from the borrower stating that the offer to enter into discussions is being made voluntarily. This protects the lender from a possible later claim that the lender acted in bad faith or put pressure on the borrower.

Neither party is obligated to move forward with the deed in lieu of foreclosure until they have a final agreement.

If you are struggling with debt and worry about foreclosure in Illinois, I encourage you to contact me. As a Chicago lawyer who specializes in foreclosure, bankruptcy, and credit repair, I work with banks, mortgage holders and lenders to find the best solution to my clients financial problems. I offer strategies to help get out of debt so you and your family a fresh start at a secure financial future and freedom from creditor harassment. I am an Illinois BK lawyer with many years of experienced as a financial rescue lawyer. I will assess your situation, give you all the facts, and answer any questions your might have so you can make an informed decision. Speak to me in confidence today. Call 312-969-0730 or email