Deed-in-Lieu Frequently Asked Questions

A Deed in Lieu of foreclosure (DIL) is a disposition option in which a mortgagor

voluntarily deeds collateral property in exchange for a release from all obligations under the

mortgage. A DIL of foreclosure may not be accepted from mortgagors who can financially

make their mortgage payments.

Question

1: When a mortgagor has been approved for utilizing a DIL of foreclosure, how much

time does a mortgagee have to complete the DIL?

Answer: A DIL of foreclosure must be completed within 90 days of initiation of the process.

Question 2: Does HUD allow $2,000 to pay off second liens when determining if a mortgagor is

eligible for a DIL?

Answer: Yes, effective with Mortgagee Letter 2002-13, HUD increased the

mortgagor’s DIL of foreclosure consideration to not exceed $2,000. The funds may

be used to pay off junior liens or be paid to the mortgagor upon vacating the property.

Question 3: Can a mortgagee revert from a foreclosure process to the acceptance of a DIL

from a mortgagor?

Answer: This is a business decision the mortgagee is to decide based upon what
is stated in the mortgagee’s Quality Control Plan.

Question 4: Does a mortgagee have the ability to accept a DIL of foreclosure when there is an existing

Partial Claim?

Answer: Yes, Mortgagee Letter 2000-05, page 37, paragraph E. Condition of Title,

states, “Good and marketable title must be conveyed to the Secretary. The lender

must complete a title search and may be required to secure release of junior liens

and/or endorsements to the title policy. HUD will not accept title subject to most

junior liens including IRS liens. However, HUD will allow liens securing repayment

of Section 235 assistance payments, partial claim advances and Title I liens.”

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