What is a deed in lieu of foreclosure?
A deed in lieu of foreclosure is a voluntary agreement where you give the lender ownership of your home to avoid the foreclosure process. The servicer must approve it through loss mitigation, and you normally must be able to give clear title. A second mortgage or other lien can stop it unless that lienholder releases its claim. Before signing, the written agreement should say whether any remaining debt is waived and when you must move out.
Key facts
- A deed in lieu means you voluntarily turn over ownership to the lender to avoid foreclosure.
- The CFPB says you need a complete loss mitigation application, supporting documents and servicer approval.
- Fannie Mae and Freddie Mac guidance points to clear and marketable title, and Fannie Mae says subordinate lien releases must be obtainable.
- The CFPB and FTC say a deed in lieu or short sale can do less damage to credit than foreclosure.
- The IRS says canceled debt is generally income, but an exclusion may apply, and Form 1099-C is required for certain canceled debts of $600 or more.
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Get my cash offerWhat a deed in lieu means
A deed in lieu of foreclosure is a way to hand the property back to the lender instead of going through the foreclosure process. The CFPB defines it as an arrangement where you voluntarily turn over ownership of your home to the lender to avoid foreclosure.
In a deed in lieu, you are not responsible for selling the home. The CFPB says you can turn over ownership to your mortgage servicer and move out. If you are also comparing sale options, read can you sell a house in foreclosure.
A deed in lieu is one type of loss mitigation. The CFPB lists loss mitigation options that may include deed in lieu, forbearance, a repayment plan, a short sale, or a loan modification. Each one works differently, so the paperwork matters.
Who qualifies for a deed in lieu
Approval is not automatic. The CFPB says you qualify by getting a loss mitigation application from your mortgage servicer, submitting a complete application with supporting documents and being approved by the servicer.
CFPB Regulation X defines a complete loss mitigation application as one where the servicer has received all the information it requires to evaluate the available loss mitigation options. The same rule says a servicer shall evaluate the borrower for all loss mitigation options available to the borrower.
Investor and loan program rules can affect the review. Freddie Mac says a servicer should review a borrower for deed in lieu when the hardship is permanent and the borrower cannot be approved for retention options or a short sale option. For FHA loans, HUD says a home disposition option may be offered when changed income or expenses mean the borrower cannot keep paying even with a home retention option.
- The servicer needs the loss mitigation application and supporting documents.
- The servicer must approve the deed in lieu before it moves forward.
- Fannie Mae and Freddie Mac guidance requires clear and marketable title.
- Fannie Mae says subordinate lien releases must be able to be obtained, if applicable.
Why second liens often block it
Second mortgages and other loans tied to the house are a common problem. The FTC says a deed in lieu may not be an option if you took out a second mortgage or used your home as collateral on other loans or obligations.
Fannie Mae says clear and marketable title must be able to be conveyed, and subordinate lien releases must be able to be obtained if they apply. Freddie Mac also says the borrower must be able to convey clear and marketable title. For a plain explanation of liens, see what is a lien on a house.
A short sale can have the same kind of lien problem. The CFPB says that if you have other mortgages on the home, you need approval from those mortgage servicers to complete the sale and have those loan balances forgiven.
Deed in lieu compared with foreclosure and short sale
A deed in lieu, foreclosure and short sale can all end with you leaving the home. The difference is how the home changes hands, who must approve the deal and how future borrowing may be treated.
The CFPB says deed in lieu and short sale options are typically less expensive and take less time than foreclosure, and they can do less damage to credit. The FTC also says a deed in lieu can be less damaging to credit than a foreclosure.
| Option | How it ends | Credit and future borrowing notes | Seller role |
|---|---|---|---|
| Deed in lieu | You voluntarily turn over ownership and move out. | Fannie Mae conventional guidance has a four year waiting period from the completion date of a deed in lieu, preforeclosure sale, or charge off. | You are not responsible for selling the home. |
| Foreclosure | The lender uses the foreclosure process allowed in that state. | The FTC says a foreclosure is likely to be reported for seven years. Fannie Mae conventional guidance has a seven year waiting period from the completion date of the foreclosure action. | The lender forecloses under the state process. |
| Short sale | For FHA loans, HUD says the servicer may accept less than the full amount owed if the current market value is not enough to pay the loan in full. | Fannie Mae conventional guidance treats a preforeclosure sale with the same four year waiting period as a deed in lieu. | A sale must be completed, and other mortgage servicers may need to approve it. |
Deficiency waivers and possible tax forms
The deficiency issue is whether the lender says you still owe money after the deed in lieu. The CFPB says if the lender waives the deficiency, get the waiver in writing and keep it for your records. Fannie Mae servicing guidance says the servicer must provide a deficiency waiver after accepting the executed deed, if applicable.
Canceled debt can also create a tax issue. The IRS says you generally must include canceled debt in income, but you may be able to exclude the canceled debt. The IRS also says a voluntary conveyance of property in lieu of foreclosure is treated as the exchange of property to satisfy a debt.
A Form 1099-C may arrive after debt is canceled. The IRS says the lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or other listed entity. If you are comparing a sale instead of handing the home back, see can you sell a house with a mortgage.
Move out timing and state foreclosure process
Move out timing comes from the deed in lieu program and the written terms. The CFPB describes deed in lieu as turning over ownership and moving out.
For Fannie Mae loans, the servicing guide tells servicers to inform borrowers of three exit options: an immediate move, a three month transition option with no rent payment required and a twelve month lease at market rent payment. Freddie Mac says its program offers up to $7,500 in relocation assistance for homeowners who meet certain requirements.
The foreclosure process you are trying to avoid also differs by state. The CFPB says some states require court foreclosure and others do not.
Frequently asked questions
Does a deed in lieu stop a foreclosure?
A deed in lieu is meant to avoid the foreclosure process, but it only works if the mortgage servicer approves it. The CFPB treats it as a loss mitigation option, so it usually starts with a complete loss mitigation application.
Can I get a deed in lieu if I have a second mortgage?
It may be difficult. The FTC says a deed in lieu may not be an option if you took out a second mortgage or used the home as collateral on other loans or obligations. Fannie Mae says subordinate lien releases must be able to be obtained if they apply.
Will I still owe money after a deed in lieu?
That depends on the written agreement. The CFPB says if the lender waives the deficiency, get the waiver in writing and keep it for your records. Do not rely on a verbal statement about any remaining balance.
Is a deed in lieu better for credit than foreclosure?
The CFPB says deed in lieu and short sale options can do less damage to credit than foreclosure. The FTC also says a deed in lieu can be less damaging to credit than a foreclosure. The sources do not give one credit score drop that applies to every homeowner.
How soon can I get another mortgage after a deed in lieu?
For Fannie Mae conventional loans, the waiting period is four years from the completion date of a deed in lieu, preforeclosure sale, or charge off. Fannie Mae lists seven years from the completion date of a foreclosure action. Other loan programs may use different rules.
Will I get a Form 1099-C after a deed in lieu?
You may. The IRS says the lender must file Form 1099-C and send you a copy if the canceled debt is $600 or more and the lender is a financial institution, credit union, federal government agency, or other covered entity. The IRS says canceled debt is generally income, but an exclusion may apply.
How long can I stay after a deed in lieu is approved?
The CFPB describes a deed in lieu as turning over ownership and moving out. For Fannie Mae loans, the servicer must inform borrowers of an immediate move option, a three month transition option with no rent payment required and a twelve month lease at market rent. Your actual move out date should match the written deed in lieu terms.
Sources
Checked against each source on November 3, 2026. This page is general information, not legal or tax advice.
- Avoid foreclosure (Consumer Financial Protection Bureau)
- Mortgage answers (Consumer Financial Protection Bureau)
- 12 CFR 1024.41 Loss mitigation procedures (Consumer Financial Protection Bureau)
- D2-3.3-02, Fannie Mae Mortgage Release (Deed-in-Lieu of Foreclosure) (Fannie Mae)
- Deed-in-Lieu (Freddie Mac Single-Family)
- FHA’s Loss Mitigation Program (U.S. Department of Housing and Urban Development)
- Publication 4681 (2025), Canceled Debts, Foreclosures, Repossessions, and Abandonments (Internal Revenue Service)
- Significant Derogatory Credit Events, Waiting Periods, and Re-establishing Credit (Fannie Mae)
- Trouble Paying Your Mortgage or Facing Foreclosure? (Federal Trade Commission)
Related seller questions
- Can you sell a house in foreclosure?
- Can you sell a house with a mortgage?
- How do you sell a house with a lien?
- What is a lien on a house?