What is a deed in lieu of foreclosure?

A deed in lieu of foreclosure is an agreement to hand ownership of your home to your mortgage lender so the lender doesn't foreclose. You move out, and whether you still owe anything depends on the written agreement, the loan and your state's law.

It's one of the ways to leave a home without a foreclosure sale. Another is a short sale, which means selling the home for less than you owe, with the lender's OK.

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Updated

Where you’ll see the term deed in lieu of foreclosure

  • A letter from your mortgage company

    In a list of your options, as a way to leave the home without a foreclosure.

  • A housing counselor's list of options

    A housing counselor approved by HUD can go over a deed in lieu with you as one way to leave the home.

  • A mortgage application

    The standard loan application asks whether you've given up a property through a deed in lieu in the past seven years.

You might see it called

  • Deed-in-lieu The short, hyphenated form the Consumer Financial Protection Bureau uses in its explanation. CFPB
  • Mortgage Release Fannie Mae's name for its deed in lieu. Fannie Mae Servicing Guide
  • DIL The short form on HUD's page about loans insured by the Federal Housing Administration (FHA). HUD

What a deed in lieu means for you

A deed in lieu isn't automatic. Each loan program sets its own rules. On an FHA loan, HUD says you may be eligible if you try a short sale first and the home doesn't sell in the time allowed. Freddie Mac tells servicers, the companies that collect your payments, to review you for a deed in lieu when your hardship is permanent and you don't qualify for a way to keep the home or a short sale.

If the home is worth less than the loan, the gap is the leftover balance, called a deficiency. Where state law lets a lender collect it, you can ask the lender to waive that balance. The Consumer Financial Protection Bureau says to get any waiver in writing and keep it.

Other loans on the home can stand in the way. A second mortgage or home equity line has its own lender, and that lender's claim on the house has to be released too. On Fannie Mae loans, Fannie Mae's rules have the servicer help get those releases.

Fannie Mae pays $7,500 toward moving costs after a completed Mortgage Release on the home you live in, with some exceptions. Freddie Mac offers up to $7,500 to homeowners who meet its conditions. Our deed in lieu guide covers each program's rules.

Questions about a deed in lieu

How badly does a deed in lieu hurt your credit?

It hurts less than a foreclosure when you apply for a new Fannie Mae loan: the usual wait to qualify is four years after a deed in lieu, compared with seven after a foreclosure. It usually shows on your credit report, marked as a deed in lieu, and so do the missed payments that tend to come first. The Consumer Financial Protection Bureau (CFPB) says most negative information can stay on a credit report for seven years.

What's the difference between a deed in lieu and foreclosure?

In a foreclosure, the lender takes the home through a forced sale. In a deed in lieu, you sign the home over by agreement, so there's no foreclosure sale. The agreement is also where the leftover balance and any moving payment get settled in writing.

How long does a deed in lieu take?

There's no set timeline. It depends on the loan program's rules, whether a short sale has to be tried first (as on FHA loans), and how long it takes to clear other loans on the home.

Can you still owe money after a deed in lieu?

You can if the written agreement does not settle the full balance. The CFPB says to make sure the agreement covers the full amount you owe. A forgiven balance can count for taxes, and the CFPB suggests asking a tax professional or attorney about it.

Free help weighing this option

Housing counselors approved by the U.S. Department of Housing and Urban Development work at nonprofit agencies. The Consumer Financial Protection Bureau describes free foreclosure-avoidance counseling, including help with mortgage-company conversations and available options Source CFPB.

  • HUD-approved housing counselors

    Nationwide800-569-4287hud.gov

    Our help directory lists 1,010 agencies approved for foreclosure counseling, by state.

  • Legal aid

    Every statelsc.gov

    Nonprofit law offices give free civil legal help to people with low incomes. Our help directory lists the 120 offices the Legal Services Corporation funds.

Our guides that cover it

Related terms

  • Short SaleA sale of a home for less than the mortgage balance, with the lender’s approval.
  • Loan ModificationA permanent change to your mortgage's terms, such as the interest rate or the length of the loan, agreed with your mortgage company.
  • ForbearanceA pause or cut in your mortgage payments for a set time. The skipped amount is still owed, and how it's repaid depends on the agreement.

Sources and method

This page uses none of our own data. Its facts come from the agency pages listed above, each opened on Oct 21, 2026.

We write with assistance from AI tools. Figures come from the data and sources named on this page.