An arrangement where a defaulting borrower voluntarily deeds the property to the lender to avoid foreclosure.
Why Deed in Lieu of Foreclosure matters on the exam
This term belongs to Financing. The questions below are real items from Freehold's bank that use it - each one cites its source.
Exam questions using Deed in Lieu of Foreclosure
Every Freehold question shows why the right answer is right — and cites its source.
A deed in lieu of foreclosure is a transaction in which:
The lender deeds the property to a third-party investor
The trustee deeds the property straight back to the original borrower personally and directly
The borrower voluntarily deeds the property to the lender to avoid formal foreclosure
The court orders a judicial sale of the property at a public auction to satisfy the debt
Show answer & explanation
The borrower voluntarily deeds the property to the lender to avoid formal foreclosure — In a deed in lieu of foreclosure, the defaulting borrower voluntarily transfers title to the lender, allowing both parties to avoid the time and expense of a formal foreclosure action.
Source: PSI National Real Estate Exam Content Outline §4 Financing
A lender considering acceptance of a deed in lieu of foreclosure should be aware that it does NOT automatically:
Give the lender title to the property
End the foreclosure process
Require the borrower's voluntary cooperation
Extinguish junior liens recorded against the property
Show answer & explanation
Extinguish junior liens recorded against the property — A deed in lieu of foreclosure transfers title but does not wipe out junior liens the way a foreclosure sale can, so the lender may still take the property subject to those liens.
Source: PSI National Real Estate Exam Content Outline §4 Financing
When a borrower pays off a mortgage loan in full, the lender should provide a document, often recorded, known as a:
Deed in lieu of foreclosure
A formal estoppel certificate
Notice of default
Satisfaction of mortgage
Show answer & explanation
Satisfaction of mortgage — A satisfaction of mortgage, sometimes called a release, is recorded to formally clear the lien from the property's title once the debt has been paid in full.
Source: PSI National Real Estate Exam Content Outline §4 Financing
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