Sample Deed in Lieu of Foreclosure Letter

Industry Observer

A law client recently asked me to prepare a "short sale" letter for him. Unfortunately, he didn't have a buyer for his home, so the short sale letter would have been of little use.   There does seems to be a widespread mis-understanding regarding the difference between a short sale and a deed in lieu of foreclosure.

A short sale can be requested from a lender when the homeowner receives an offer for their house and the amount offered is less than the amount owed on the house.  The sale comes up short and the homeowner asks the lender to accept the offered amount as payment in full for the mortgage loan.  To request a short sale you can use this letter as an example.

A deed in lieu is actually more common in today's market.  The homeowner has had their house on the market for a long time and there has been few, if any, offers.  Rather than continue to make payments on the house, the homeowner asks the bank to take the deed to the house instead of (in lieu) of foreclosure.  The bank may consider this if there aren't any significant liens on the property, such as a 2nd mortgage or large IRS liens.  Here is an example of a request for a deed in lieu.

Comments (21)

Dan Grammar
Realty Executives, Tucson Elite - Oro Valley, AZ
Professional Realtor - Tucson Arizona Real Estate

Excellent Content Ralph and absolutely appropriate timing!  Thanks for the letters!


Mar 11, 2008 01:26 PM
Tiffany Cloud
HomeSmart Real Estate - Gilbert, AZ


Thanks for sharing this information.  I leave the shorts and foreclosures to your experts, but it is great to have this in my file box for reference should I ever need it.

Mar 11, 2008 01:27 PM
Tiffany Cloud
HomeSmart Real Estate - Gilbert, AZ


I just noticed you are new - WELCOME!!  You are off to a great start!

Mar 11, 2008 01:30 PM
Paul Kaplan
The Paul Kaplan Group, Inc - Palm Springs, CA
Mid Century/Modern homes in Palm Springs - www.Pau

Thanks for the clear explanation, that really simplifies it.

Mar 11, 2008 01:31 PM
Eric Reid
Renaissance Realty Group of Keller Williams Atlanta Partners - Lawrenceville, GA

would love to have the LAW eye on these to current BLOGS

More and More Realtors Are Using Attorney's To Help Facilitate Their Short Sales


Why the Banks Dont Make a Counter Offer on a SHORT SALE ??


I keep trying to get agent to understand that a SHORT SALE is not between the buyer and the bank but the seller begging forgiveness of a debit .. help me out here please

Mar 11, 2008 01:45 PM
JDo Doe
Barrington, RI
Nice post - great letters as well.  I love simple explanations and bringing the jargon down to a common level of understanding for everyone!
Mar 11, 2008 01:54 PM
Teresa J. Ramey
ReDecorating with Style - Florence, SC

This is great information.  Thank you for posting this.


Mar 19, 2008 04:21 AM

thank you Ralph for this much need information. I am very sad to say I am at this point of losing my property of more than ten years of owing it due to a seperation and nonpayment of child support to help out. I sadly say that i let my other half make all of the decisions on getting loans on the home and did not say a word but i knew that some of the decions were bad and when i tried to say he would beat me down with arguing his point. so hear i am losing my home that eventually came down to me alone trying to save it. i am glad to see that there are people like you giving much needed (FREE) advice on some of our questions.

Down but not out!

Apr 29, 2008 09:18 AM
No tax on Deed-in-Lieu after December 31, 2006

Sidney:  Many folks aren't aware of the Mortgage Forgiveness Tax Relief Act of 2007 which was passed to eliminate the so-called "stealth tax"  on mortgage foregiveness income.  Under the new law, which applies to debt forgiven in 2007, 2008 or 2009 taxpayers may exclude debt forgiveness income on their principal residence if the balance on the loan doesn't exceed $2 million.  You can refer to IRS Form 982 and its instructions for more details.  The instructions for issuers of 1099's now state that deed-in-lieu debt forgiveness need not be reported. 

A deed in lieu can be difficult, if not impossible to negotiate, if there are two mortgages on a property.  It's worth a shot however.  More info is available here

May 08, 2008 03:56 PM
Lorinda Ward
Keffer Realty - Norfolk, VA
Serving, Hampton Roads Virginia. Norfolk, Chesapeake, Va Beach

Thenk you for the information.  Have a great day.

May 29, 2008 07:41 AM
Aida Pinto
Independent Real Estate Broker - Los Angeles, CA
Real Estate Broker (562) 884-6196

Ralph thanks for sharing.  I am doing a friend a favor---one of her clients (my friend is a Realtor in Oregon) was a victim of sorts in a fraud case her name was used to purchase a home that is now in default---well I suggested she do a deed in lieu of foreclosure.  What are your thoughts  about this?

Jun 23, 2008 07:55 AM
Charles Fischer
Housing Market Realty - Merritt Island, FL
Professional Real Estate Services

Ralph: thanks for sharing your insight and paperwork.  So many people are mis-informed in this market.

Feb 10, 2009 11:18 AM
Satar Naghshineh
Satar - Amiri Property and Financial Services Corp. - Irvine, CA

I can't think of a reason in which you would do a deed in lieu instead of a short sale. Lower a price low enough and you will get buyers. If you can't find a buyer for your short sales, you are doing something wrong.

Feb 14, 2009 03:28 PM
Christopher McClatchey
THM Investments, LLC - Merritt Island, FL

Ralph, thanks for allowing us to use the sample letters.  Sometimes it is difficult to explain a deed in lieu of foreclosure to clients and your letters will really help.

Feb 26, 2009 01:30 PM
Fernando Herboso - Associate Broker MD, & VA
Maxus Realty Group of Samson Properties - Clarksburg, MD
301-246-0001 Serving Maryland, DC and Northern VA

Thank you for posting. . .great information. . .

Dec 06, 2009 11:50 PM
Ginger Harper
Coldwell Banker Sea Coast Advantage~ Ginger Harper Real Estate Team - Southport, NC
Your Southport~Oak Island Agent~Brunswick County!

Thanks for sharing this with us.

Good information to have.


Dec 16, 2009 01:30 AM

Respected sir,i have problem regarding my house i can't explain but i faced this one similar like this post.Thanks for sharing this post.

Jan 27, 2010 05:11 PM
Kenneth Young
Uni International LLC - Virginia Beach, VA

Thanks Ralph, good info. and welcome to Rain.....



Apr 05, 2010 07:29 AM
Jake Burton
DoHardMoney.Com - Salt Lake City, UT

This is just a superb information and thank you so much Ralph for the sample letters. They are great and easy to follow. I must admit this is such a great qulaity work you have done for hundreds here.

Dec 07, 2010 01:10 AM
Mike Norvell Sr
Morris Williams Realty - Leesburg, FL
Norvell Consulting Group

Yes, nice post and letters...but are these updated to any changes that might need to be addressed now in 2011??


Aug 18, 2011 08:21 AM