How to negotiate a deed in lieu of foreclosure

A deed in lieu of foreclosure option allows a borrower to turn over the deed to his or her home in exchange for release from the mortgage debt associated with the property. In shape and form, it is the same as a foreclosure. However, the main advantage is that the borrower does not have to go through foreclosure and suffer financial consequences from that process.

#1 Consider All Alternatives

A lender will in most cases prefer to foreclose on a property. In a foreclosure, the lender can charge the borrower all costs associated with taking over the property and, furthermore, go after the borrower for any outstanding unpaid debt. Since lenders may prefer this option, the borrower will have to sway the lender away from foreclosure proceedings. The first step to doing this is to outline the likely scenario that would result from a foreclosure. For example, consider if you could pay the lender outstanding debts or you would have to declare bankruptcy and be unable to pay any additional debts.

#2 Present Alternatives to Lender

If you discover that the alternative options are unfavorable to the lender, present this information. For example, tell the lender that you will have no choice but to declare bankruptcy if foreclosure occurs. Provide estimates of foreclosure costs to the lender in your area. If applicable, show the lender the challenges of selling a foreclosed property.

#3 Verify Statements Made in Your Presentation

Any statement you make to your lender will have to be verified. For example, if you have told your lender that you will declare bankruptcy in the case of a foreclosure, verify this statement. Do so by showing you cannot fiscally afford to repay the remaining balance on the loan once the property enters foreclosure. Provide a statement from a bankruptcy attorney showing that you would not be required to repay the debts, where applicable.

#4 Propose a Solution

Once you have shown the lender how costly it would be to go through foreclosure with you, present a viable alternative. Show how the cost of a deed in lieu would be less expensive. If you are eligible for the Home Affordable Mortgage Program’s foreclosure alternative programs, supply your lender with information about these programs. Your job is to convince the lender they will benefit through deed in lieu. If you can do this, most lenders will agree to work with you to avoid foreclosure.

#5 Follow Legal Guidelines to Finalize the Transaction

A deed in lieu program works only if both parties agree to the transaction in good faith. Your mortgage must be secured against your home, and the lender must be willing to accept this collateral voluntarily to cancel your remaining debt. As a result, it is essential that you follow legal guidelines to show that your lender has voluntarily agreed to this option. Otherwise, the lender could sue you in the future for any remaining balance on your loan once the home has been sold. You may be obligated to pay this amount if any portion of your deed in lieu of foreclosure process is not lawfully completed.

How long does a deed in lieu of foreclosure stay on your credit report?

While completing a deed in lieu of foreclosure can save you from some legal hassle and financial penalties associated with an actual foreclosure, your credit report will show the same negative effect as if you actually went through a foreclosure proceeding. To have the best chance of saving your credit, negotiate how the process will be reported with your mortgage lender. Ask the lender to report the incident as a loan resolved in an unsatisfactory manner, not as a foreclosure. If you do have the foreclosure on your record, it will go away within 5 to 10 years depending on your state. Research your state’s lending laws to find out the precise timeframe.

by Wayne in Lewiston, Maine and by Zoie from Durham, North Carolina

Ask Kate how to negotiate during the deed in lieu of foreclosure process: It’s not always simple to know how to work with your lender when a mortgage payment is no longer affordable. Divorce can complicate the process. A 2nd mortgage also creates unexpected twists and turns for already distressed homeowners.

So let’s take a look at two situations where the deed in lieu of foreclosure process has become difficult and discuss options.

But first, let’s define the process. In a nutshell, a deed in lieu of foreclosure, also known as D.I.L., occurs after a homeowner contacts their loan servicer to deed back the house. Avoiding foreclosure, the property is quickly turned over to the lender while the borrower is forgiven the mortgage debt.

Depending on your lender, the D.I.L. process may also offer $10,000 for relocation expense in exchange for a house that is left in a suitable condition. (More on this later.)

Deed in Lieu of Foreclosure and Divorce

How to negotiate a deed in lieu of foreclosure

I am in desperate need of help; my ex-wife has bailed on making payments on the house she lived in after our divorce 4 years ago. She was ordered by the bank to make the payments but has not.

She is extremely behind on payments so we pursued a deed in lieu of foreclosure.

The bank agreed to this and we negotiated that they waive the deficiency, however, the bank is now asking that I pay a lump sum of 13,000 dollars to move forward.

I have 10k in my savings but that’s all I have and my ex-wife will not pay a dime. Should I agree to this or should I just let them foreclose? I am so lost please help.

***zz-portrait-left.shtml*** Ask Kate answers: Deed in Lieu of Foreclosure and Divorce

It really stinks when court orders are not enforced per the divorce decree.

In addition, lenders are not bound by the court’s decisions, as you are finding out. So, since you are still a borrower on the mortgage, you are smart to take action to protect yourself.

Here a couple of options.

1. Negotiate the Deed in Lieu of Foreclosure

Try to negotiate the $13,000 down to an affordable amount by offering the lender quick possession to the property. In addition to a speedy turn around, lenders are also interested in knowing a house will be fully vacated with no personal belongings left behind.

Often in foreclosure, a house is vandalized before the lender can take possession. Assure the lender that this will not be the case and that they will be receiving back a property that can be immediately sold.

2. Short Sale for Underwater Homes

If there is negative equity, you could pursue a short sale instead of deed in lieu of foreclosure. In the short sale process, you put the house up for sale. Then both you and the lender accept an offer from a home buyer for less than the principal balance of the mortgage.

3. Foreclosure Process as a Last Resort

Lastly, there is the option of foreclosure, that is plainly walking away from the mortgage and the house.

I understand the lack of appeal but here’s the thing. Since you are still a borrower on the mortgage that your ex-wife defaulted on, most likely your credit has been adversely affected already. Aggravating as it is, short sales and deeds in lieu of foreclosure also tarnish credit records and lower scores. I point this out in case foreclosure becomes your only option.

It isn’t often that you will hear me saying what I told Deborah at Short Sale vs Mortgage Foreclosure – The Agony of 21st Century Homeownership. Perhaps it would ease your mind to read my response.

Of course, you also need to consult a CPA to learn of tax implications, regardless of the path you choose — deed in lieu of foreclosure, short sale, or foreclosure itself.

Wishing you the very best of luck,

Deed in Lieu of Foreclosure Request with 2nd Mortgage

How to negotiate a deed in lieu of foreclosure

We have applied for a deed in lieu of foreclosure with NFCU. The property has a 2nd mortgage with a Hardest Hit program lender that will forgive the loan, if NFCU would request a statement of satisfaction.

But my mortgage company (NFCU) will not continue the process, or request the statement of satisfaction.

***zz-portrait-left.shtml*** Ask Kate answers: Deed in Lieu of Foreclosure Request with 2nd Mortgage

A 2nd mortgage complicates the D.I.L. process because a lender is not as free to sell the property afterward. This negates the benefit of getting the mortgage off the lender’s books quickly and is probably why your loan servicer won’t move forward.

You have a 2nd mortgage lender that would cooperate. Not all are willing to. But sadly, trying to convince your 1st lien holder of that is like trying to change the course of the Titanic.

Hardest Hit Funds – Principal Reduction Program

So let’s take another direction. Try calling the North Carolina Housing Finance Agency at 888-442-8188 and ask them for assistance dealing with your lender. There are no guarantees that they can, but why not try?

Remember also, access to the Hardest Hit Funds is not dependent on your lender’s cooperation. Perhaps this could become an alternative to a D.I.L. and contribute to saving your home.

Read more about this help at Hardest Hit Funds – Principal Reduction Program where I explain how the Treasury Department has allocated over 7 billion dollars to help struggling homeowners in the hardest hit states who are unemployed or underemployed. Additionally, the funds go toward principal reductions, elimination of 2nd mortgages, and relocation funds.

More on Deeds in Lieu of Foreclosure

Deed-in-Lieu of Foreclosure and $10,000 HAFA Relocation Assistance: Meet Trevor who tells his story of applying for a deed-in-lieu of foreclosure, one of the Making Home Affordable Foreclosure Alternatives (HAFA) that includes $10,000 to help with transitioning to a new home.

Deed in Lieu of Foreclosure: Mary and her husband, out of work and in need of medical attention, have deeded their home back to the bank to avoid mortgage foreclosure. But with no heat in their temporary living quarters, they are desperately looking for the next step.

Best wishes to you,

Have You Seen These Ask Kate Answers

  • Appraised Value Discrepancies: PMI Cancellation and Home Buying
  • What Is Reverse Mortgage for Home Purchase Program
  • USDA Refinance: No Appraisal, No Credit Report, No Debt-to-Income Ratios
  • USDA Rural Home Loans: Zero Down Payment Mortgage

You can also ask Kate a mortgage question or add a comment at the bottom of this page. ***zzz-link-harp-news.shtml*** ***zz-newsletter.shtml***

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How to negotiate a deed in lieu of foreclosure

Related Articles

  • Does a Person Have to Be Behind in Their Mortgage Payments for a Deed-in-Lieu?
  • How to Turn in House Keys After a Foreclosure
  • How to Make Alternative Offers in a Real Estate Offer to Purchase
  • What Comes First: Short Sale or Foreclosure in Real Estate Loans?
  • Can I File My Income Tax if I’m in Foreclosure?

For those concerned about the negative effects of foreclosure, a deed in lieu of foreclosure is an option. A deed in lieu allows you to sign over legal ownership of your home in exchange for your lender’s promise not to foreclose. Convincing your lender to accept a deed in lieu of foreclosure can take some work. Unfortunately, lenders actually may prefer to force a foreclosure rather than lose certain debt recovery rights under a deed in lieu.

Deed in Lieu

A deed in lieu of foreclosure is the voluntary transfer of ownership of your property to your mortgage lender. In return for your home’s deed, the mortgage lender releases you from your mortgage loan and any responsibility for it. Deeds in lieu of foreclosure can benefit both homeowners and mortgage lenders. Under a deed in lieu, a homeowner avoids foreclosure while a mortgage lender quickly takes full and unencumbered possession of the home.


Negotiating with a lender to accept a deed in lieu of foreclosure means demonstrating financial hardship on your part. First, approach your lender with sufficient proof of inability to repay your mortgage, and then offer a deed in lieu of foreclosure. Second, negotiate the terms of any reports to credit bureaus your lender may make after it accepts your deed in lieu. Finally, make sure the lender won’t pursue you later for any financial loss it suffers.


If possible, hire a foreclosure attorney to represent your deed in lieu offer to your mortgage lender. Also, build a very comprehensive deed in lieu offer, and go over it thoroughly before presenting it to your lender. Be prepared to make use of other foreclosure prevention options quickly if your lender turns down your deed in lieu offer. In extreme cases, mentioning the possibility of bankruptcy could convince your lender to accept a deed in lieu.


Lenders almost never accept deed in lieu offers from homeowners with second mortgages on their titles. Additionally, if your home is worth less than you owe, a lender most likely will refuse your offer of a deed in lieu. However, if your lender insists on a foreclosure, you could have from several weeks to a year before it actually takes place. In California, even speedy foreclosures take about four to five months to complete.

Related Articles

To avoid foreclosure, mortgage borrowers may opt for a preventative measure known as a deed in lieu of foreclosure. This option allows you to give your home to the lender and have the debt canceled, so that you can move to more affordable housing. Some lenders give a monetary incentive for signing over the deed to your home and exiting gracefully. The incentive amount varies among lenders.

The Basics

As a last resort, your lender may approve a deed in lieu of foreclosure, saving you the time and hassle of foreclosure proceedings. Also known as “cash for keys,” lenders may offer incentives to encourage you to choose a deed in lieu of foreclosure rather than stay in the home beyond the foreclosure date. The lender pays you to move out within a specified period of time and under certain terms, such as leaving the home empty and reasonably clean.

Government Incentive

The government’s Home Affordable Foreclosure Alternatives program offers a streamlined deed in lieu of foreclosure process through more than 100 participating lenders. As of 2013, the program provides up to $3,000 in relocation assistance upon closing a cash-for-keys transaction. The lender agrees to release you from all liability for the loan and any deficiency thereafter. You may be held liable for the deficiency by the IRS, unless you can prove that your were insolvent — unable to pay your debts — at the time of the transaction.

In-House Incentive

Some lenders have in-house deed in lieu of foreclosure incentive programs. Such programs allow lenders to negotiate with borrowers on a case-by-case basis, based on their financial situation and how soon they want to retake ownership of the home. Nonprofit counseling agencies approved by the Department of Housing and Urban Development also can help borrowers negotiate graceful exits to homeownership, according to


Cash-for-keys incentives are intended to help with relocation costs. Borrowers who qualify for deed in lieu of foreclosure on investment property usually don’t receive the incentive. The lender or the federal government may offer the money to the current tenants to help them move out quickly and under better conditions than they might face by forced eviction.

PennyMac customers:

The owner or insurer of your mortgage loan may require you to be reviewed for an option that will allow you to remain in your home (e.g. Loan Modification), as well as a short sale of your property prior to being review for a Deed in Lieu. One of our representatives can assist you with options that are available for your specific circumstance.


  • You can walk away from your mortgage debt. Consult with your tax professional to see how this may impact you.
  • You may receive cash to assist you with expenses in relocating.
  • You avoid having a foreclosure on your credit report.
  • You avoid the costs and stress of public foreclosure.
  • You can work out a convenient move-out date.

The Deed in Lieu Process

PennyMac will review your eligibility for the program. We’ll figure out the property value, look at what you owe, and consider your current financial hardship. You will need to ensure title is free and clear of other liens against the property (we may be able to help you negotiate with those lenders, but it’s your responsibility to satisfy those debts).

Once approved, you’ll need to move out of the property by an agreed-upon date. You’ll need to remove all of your personal belongings and leave the home in clean and safe condition.

Relocation Assistance

Because this option requires you to move to a new home, PennyMac may offer a one-time cash incentive to help with your relocation expenses. You’ll receive this money after the recording of the deed in lieu documents, provided you have met all of the requirements above. The amount may vary.

Speak with a Friendly Loan Resolution Specialist

Hours (PST) Monday – Friday 6 a.m. – 6 p.m.
Saturday 7 a.m. – 11 a.m.


  • PennyMac does not charge fees for a modification or other loss mitigation plans when you are facing a delinquency
  • PennyMac does not accept payments from Money Gram
  • Funds are always payable to PennyMac and not to an individual

PennyMac will work with you to ensure every option possible is explored to retain home ownership. No fees. No strings.

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How to negotiate a deed in lieu of foreclosure

A deed in lieu of foreclosure is an agreement reached between a homeowner and a lender in which the homeowner turns over the deed to the home, and the lender agrees to halt foreclosure proceedings. Negotiating a deed in lieu of foreclosure agreement is a way to avoid foreclosure, but many people view it as a last resort, since it can have a negative impact on the homeowner’s credit record. Also, a lender may not be willing to negotiate, as most lenders want cash, not real estate which they will have to manage or sell.

The terms of the agreement can vary considerably, and it is a good idea to firmly negotiate the terms so that both parties understand the agreement. As a general rule, in a deed in lieu of foreclosure settlement, the homeowner signs away the deed, giving the home to the lender, and the lender writes off the homeowner’s debt, essentially canceling the mortgage.

However, there are some caveats. For example, a lender may agree to take possession, but it still holds the buyer responsible for the loan, which means that if the lender cannot sell the house for the necessary amount, the buyer will still be liable for the balance. If the debt is not settled with the deed, the deed in lieu of foreclosure will also show up as a black mark on the buyer’s credit record, as the loan will be listed as being in default. The forgiven debt may also be subject to income tax, which is something to consider for people who struggle to pay their taxes.

For lenders, a deed in lieu of foreclosure helps to settle a situation fast, and protects them in case the buyer files for bankruptcy. It also tends to produce a property which is in better condition, since people who go through foreclosure proceedings tend to become less interested in caring for their properties, and some people even actively vandalize their properties out of anger, making the property harder to sell.

For homeowners, negotiating a deed in lieu of foreclosure can be used to settle the matter, allowing the buyer to start with a clean slate, if the negotiations are carried out well. It can be helpful to retain a lawyer to make sure that the debt will be forgiven when the deed is signed over. Of course, the agreement also means that the house needs to be vacated immediately, unlike in a foreclosure proceeding, where the homeowner typically has several months of warning to prepare.

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

How to negotiate a deed in lieu of foreclosureMary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

How to negotiate a deed in lieu of foreclosure

What can you do when your house is in pre-foreclosure?

Are you having trouble paying your mortgage? You are far from being the only one. With unemployment at a record high, many people are faced with difficult decisions when comes the time to pay their bills. It is only a matter of time before they receive a notice of default and their lender starts the pre-foreclosure process. Typically, lenders will send a notice after three missed mortgage payments.

So, what can homeowners do when their property is at risk of being foreclosed? The good news is that all is not lost. The lender has not taken any legal action against you, and you can still reverse the process. The easiest way to avoid foreclosure is to pay off any missed payments, including interests. However, it isn’t always possible. Nevertheless, you can still walk out without any significant adverse effect on your credit. Sometimes you can even keep your house.

Here is what you can do when you receive a notice of default, and your home is in pre-foreclosure.

Request a loan modification

If you are struggling to make your monthly payments but want to keep your home, you may be able to work out with your lender to renegotiate your loan terms. Be proactive if you feel like you may not be able to pay your mortgage on time and in full, for example, if you get sick or get laid off. You do not need to wait to be late on your monthly payments to get in touch with your mortgage agent.

A loan modification allows you to change to your mortgage’s original terms to lower your monthly payments. There are several ways to modify your loan, depending on your financial situation and your lender’s offering.

Some common loan modifications include a lower interest rate or an extended-term. You can also request more predictable payments with a fixed-rate loan if your current mortgage has an adjustable rate. If you are going through a rough patch with an end in sight, your lender may be willing to delay some payments without paying a penalty fee (forbearance agreement). More rarely, your lender may allow for principal reduction.

Negotiate a deed in lieu of foreclosure

In some cases, the homeowner may want to cut their losses and walk away from the deal entirely. If your mortgage allows, you may be able to avoid foreclosure by handing over the deed and any claim you have on the property to your lending establishment. In exchange, your lender releases you from your mortgage obligations.

Sometimes, the lender may also offer a cash sum. It allows the former homeowners to start their new life. They are also more likely to leave the property in good condition. It is commonly known as “cash for key.” By allowing the homeowner to walk away, the lenders save themselves to the lengthy and expensive foreclosure procedure.

Sell your home during the pre-foreclosure process

Finally, the homeowners are allowed to sell their property throughout the pre-foreclosure and foreclosure process. They can then use the proceeds to pay off their debt.

If you owe more than the house I worth, the bank may allow for a short sale. In this situation, the bank takes the money from the sale, but forgives the outstanding balance, allowing the homeowner to walk out debt-free. However, it is up to the owner to find the real estate agent to list the property. Homebuyers can also be wary of short sales, which tend to take a long time to close because of the amount of paperwork involved in this atypical transaction.

The homeowners can also try their luck directly on the real estate market if they think they can raise enough cash to pay off what they owe. Although they get to keep any excess leftover from the sale, time is often of the essence as the pre-foreclosure and foreclosure process run their course. It is best to price the property slightly below market value to attract buyers and offer a quick closing if possible.

Homes in pre-foreclosure also often suffer from deferred maintenance due to the owner’s lack of funds. It is another factor to consider when pricing the property to sell as it may affect financing.

Finally, homeowners facing pre-foreclosure can also opt for an alternative solution. They can sell their property directly to a cash home buyer like National Cash Offer. These companies guarantee a quick closing and a fair offer. It allows distressed home sellers to walk away in the best possible conditions.

Conveyance of Deed to Lender in Lieu of Foreclosure Agreement made on the (date), between (Name of Grantor) of (street address, city, state, zip code), referred to herein as Grantor, and (Name of.

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