What is a "deed in lieu"?

A deed in lieu is a process by which a consumer avoids going through the foreclosure process by voluntarily giving up ownership of his home. The deed of the home is transferred to the mortgage holder, and the mortgage holder then takes ownership of the home.

This option relieves the borrower of any future payment obligations in regards to the mortgage balance. However, the borrower may be responsible for a deficiency balance if the home sells for less than the mortgage balance. The exact process for a deed in lieu of foreclosure will vary based on the mortgage holder as well as on local and state laws.