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Deed in lieu of foreclosure

Deed in lieu of foreclosure

A deed in lieu of foreclosure is a deed instrument in which a mortgagor
(i.e. the borrower) conveys all interest in a real property to the
mortgagee (i.e. the lender) to satisfy a loan that is in default
and avoid foreclosure proceedings.

Usually, a deed in lieu of foreclosure is deemed to fully satisfy the debt.
However, lenders frequently look for new ways to recoup their losses
and New York does not have a law that says the lender cannot get a
deficiency judgment following a deed in lieu of foreclosure.
This means that a lender may try to hold the borrower liable
for a deficiency following a deed in lieu of foreclosure.

To avoid a deficiency judgment with a deed in lieu of foreclosure,
the agreement must expressly state that the transaction is in full
satisfaction of the debt. If the deed in lieu of foreclosure
agreement does not contain this provision, the lender may
file a lawsuit to obtain a deficiency judgment.