If you’re experiencing housing troubles and you’re not sure how to continue paying your mortgage, you’re not alone. In a recent survey of almost 7,600 adults in the United States, 10% of Americans struggle to pay rent or mortgage payments on time and frequently skip payments.


When you’re not sure what to do next to get out from under your home, you might be asking if you can give your house back to the bank without an expensive foreclosure. Avoiding foreclosure is a common concern, but is this an actual option?


Giving back your home to the bank is actually called a “deed in lieu of foreclosure.” However, it’s a bit more complicated than the phrase might sound. As you might imagine, you can’t simply give the bank your home deed and go on your way. In this guide, we’ll explain what debt in lieu of foreclosure really means, and how to start this process if you think it’s right for you.



Can you give your home back to the bank? | Money on table


What is Deed in Lieu of Foreclosure?

Completing a deed in lieu of foreclosure is a way to avoid foreclosure on your home. It’s the process of a homeowner voluntarily transferring the title of their property to their mortgage lender in order to be released from the mortgage obligation. This process is done before the lender starts the foreclosure proceedings.


Because it looks different on your credit report than a standard foreclosure, it’s often seen as a more positive outcome. However, your credit score will probably drop just as much as it would with a traditional foreclosure. In general, it’s usually a better idea to proceed with a short sale, loan modification, or an open-market sale rather than choose a deed in lieu of foreclosure.


When would you choose to proceed with a deed in lieu of foreclosure? Most likely it will only be something you’ll consider if you’re unable to do any of the above options instead, and you’re hoping to avoid an expensive foreclosure. A deed in lieu of foreclosure is usually faster than a foreclosure, and it can be more affordable and there are some financial assistance programs available.



How to Start a Deed in Lieu of Foreclosure

As we said before, this process isn’t as simple as giving your house back to the bank. Before you begin this process, you’ll want to talk to your lender about other assistance options. They might have options to assist you during a troubling financial time, or they might be able to offer a repayment program that works better for your needs.


If you’re out of options and need to start the deed in lieu of foreclosure process, follow these steps:


  1. First, you’ll need to request a loss mitigation package from your loan provider. This will include an application with information about your current income and financial situation.
  2. Create a hardship letter. This will outline a circumstance that’s considered to be beyond your control as the borrower. It can include job loss, death of a spouse, illness, etc.
  3. Next, the lender will do a title search. A deed in lieu of foreclosure is usually only allowed on a first mortgage, which means you should have no additional liens or second mortgages on the property.
  4. If you have no liens, the lender will secure a brokers price opinion to declare the market value of the property.
  5. Finally, you’ll get a decision on the deed in lieu, and you’ll need to sign a deed in lieu of foreclosure grant in order to transfer the property to the lender.


While it might be a complicated process, it’s certainly simpler than going through a lengthy foreclosure. After you transfer your deed officially, you’ll need to move from the home. You’ll no longer be bound to make mortgage payments on the property, and you’re essentially free to move on with your life.


As you can see, choosing a deed in lieu of foreclosure isn’t as simple as giving your house back to the bank to avoid an expensive foreclosure. However, you can use this process to escape the time and expense of the foreclosure process if you don’t have any other options. However, always talk to your lender before jumping into a new process. You never know what options you might have.