- Best for
- When you cannot keep the home, cannot sell it, and want a clean, planned exit.
- You keep the home
- No, though some programs let you stay for a transition period.
- Watch for
- Other liens on the home, and whether the leftover debt is waived in writing.
How it works
You voluntarily transfer ownership to the lender. In exchange, the lender ends the foreclosure and, depending on the program and your agreement, releases you from the remaining debt.
Lenders generally want a clear title, so a second mortgage, a tax lien or a judgment on the home can block a deed in lieu.
What the loan programs offer
- Fannie Mae calls it a Mortgage Release. You can move out right away, stay up to three months rent-free, or lease the home for twelve months at market rent. The deficiency is released on the same terms as a short sale, and there is a $7,500 relocation incentive for a principal residence.
- Freddie Mac: a deed in lieu may come with a relocation incentive.
- FHA: a deed in lieu is the last option in FHA's order, considered after a pre-foreclosure sale.
- VA: a deed in lieu is on VA's list of alternatives. You must repay VA's loss to restore your entitlement for a future VA loan.
- USDA guaranteed loans: a deed in lieu is available after the options to keep the home have been exhausted.
Before you sign
- Get the agreement in writing, and make sure it says whether the remaining debt is forgiven.
- Ask about relocation money and how long you can stay.
- Ask how it will be reported to the credit bureaus.
- Check the tax position. Forgiven debt can be taxable. See taxes after foreclosure or forgiven debt.
- Only your lender or servicer can accept a deed in lieu. Never sign your deed over to a third party who promises to save the home. See foreclosure rescue scams.
How much time do you have? It depends on your state.
See the foreclosure timeline, deadlines and free local help for the state where the home is.
Common questions
Is a deed in lieu better than a foreclosure?
It can be. You avoid a public sale, you may get relocation money and a set move-out date, and under several programs the leftover debt is released. Whether it is better for you depends on your loan, your state's deficiency rules and your other liens. A HUD-approved housing counselor can compare them with you for free.
Can I do a deed in lieu if I have a second mortgage?
It is harder. The first lender usually will not accept the deed unless the other liens are released, so the second lienholder has to agree.
Other options to compare
- Repayment planYou keep paying your normal mortgage payment and add an extra amount each month until the missed payments are paid back.
- ForbearanceYour servicer agrees to accept reduced payments, or none, for a limited time. The missed amount is still owed and has to be dealt with when the pause ends.
- Payment deferral or partial claimThe missed payments are set aside as a balance with no interest and no monthly payment. It comes due when you sell, refinance or pay off the mortgage.
- Loan modificationYour servicer permanently changes the loan, usually by adding the missed payments to the balance and stretching the term or lowering the rate, so the payment is affordable.
- ReinstatementYou pay all the missed payments, late fees and foreclosure costs in one payment. The loan goes back to normal and the foreclosure ends.
- Short saleYou sell the home for less than the mortgage balance and the lender agrees to take the sale price. It avoids a foreclosure sale when keeping the home is not possible.
Sources
- Fannie Mae Servicing Guide D2-3.3-02, Mortgage Release (deed in lieu)
- Freddie Mac: Options to leave your home
- HUD Handbook 4000.1, Update 18 (August 2026), FHA loss mitigation
- VA: Help to avoid foreclosure
- 7 C.F.R. § 3555.305, USDA voluntary liquidation (eCFR)
- IRS Publication 4681, canceled debts, foreclosures, repossessions and abandonments