The Deed-in-Lieu of Foreclosure allows a mortgagor in default, who does not qualify for any other HUD Loss Mitigation option, to sign the house back over to the mortgage company.   Ref: Mortgagee Letters 2000-05 and 2002-13.




  • Mortgagee can pay, not to exceed $2,000 compensation, to the mortgagor.
  • The $2,000 compensation is not paid to mortgagor until they have vacated the property.
  • Mortgagor(s) compensation must be applied to any junior lien(s) placed on the mortgage property.
  • Mortgagor must agree to “written” agreement of property conditions.
  •  Mortgagees may determine that a “current” mortgagor is eligible for the Deed-in-Lieu of foreclosure option.
  • Under no circumstance should the mortgagor be encouraged to default on their mortgage for the purpose of qualifying for this option.
  • Deed-in-Lieu must be completed or foreclosure initiated within six (6) months of the date of default, unless the mortgagee qualified for an extension of time by first trying a different loss mitigation option or an extension of time was approved by HUD prior to the expiration of the time requirement.
  • If the Deed-in-Lieu follows a failed special forbearance agreement or the pre-foreclosure sale program, then the Deed-in-Lieu must be completed or foreclosure initiated within 90 days of the failure.




  • The property must be owner-occupied, no “walk-a ways” or investment properties. Exceptions: when it is verifiable that the need to vacate was related to the cause of default (job loss, transfer, divorce, death), and the subject property was not purchased as a rental investment, or used as a rental for more than 12 months.
  • The mortgagor must be 31 days delinquent or more at the time of the Deed-in-Lieu Warranty Special Deed is executed.
  • The mortgagor must provide documentation of a reduction in income or an increase in living expense, and documentation, which verifies the borrowers need to vacate the property.
  • Mortgagee will develop a written Deed-in-Lieu of Foreclosure Agreement, which is to be signed by both the mortgagor and mortgagee, which contain all of the conditions under which the Deed will be accepted.


If you have any question you may contact NSC at:



National Servicing Center



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