What does 'deed in lieu of foreclosure' involve?

A deed in lieu of foreclosure involves a borrower voluntarily transferring ownership of their property to the lender in order to satisfy a loan that is in default. By doing so, the lender agrees to release the borrower from the mortgage debt, allowing them to avoid the lengthy and potentially costly foreclosure process. This arrangement is often beneficial for both parties: the lender receives the property back without going through foreclosure, which can be a complicated and time-consuming legal process, and the borrower can avoid negative impacts on their credit score associated with a foreclosure.

In this context, selling the property to pay off the mortgage is not the method described in a deed in lieu of foreclosure; rather, it is a separate transaction altogether. Similarly, foreclosing on the property involves the lender taking legal action to sell the property after the borrower defaults, which is not the cooperative approach indicated by the deed in lieu. Transferring the loan to the buyer does not relate to the deed in lieu of foreclosure, as that would suggest a sale or assignment of the loan rather than the voluntary transfer of property ownership as a solution to default.