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Deeds in Lieu of Foreclosure: Advantages, Disadvantages, Avoiding Pitfalls, and Vital Provisions

Impact of Intercreditor Agreements and Mezzanine Financing, Tax and Bankruptcy Considerations, Subordinate Liens

Note: CPE credit is not offered on this program

Recording of a 90-minute premium CLE video webinar with Q&A

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Conducted on Tuesday, October 10, 2023

Recorded event now available

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This CLE webinar will address the advantages and disadvantages of deeds in lieu of foreclosure and the current spike in their use due to the present distressed market. The panel will discuss key considerations for borrowers and lenders when entering into a deed in lieu agreement and provide tips for avoiding common pitfalls.


When a mortgage is in default, a deed in lieu of foreclosure offers distinct advantages: the lender immediately becomes the owner of the property, allowing it to take immediate control of its operation, and the transaction can be quickly negotiated and completed, avoiding the time and expense of foreclosure. In exchange, the borrower and guarantor, when applicable, can negotiate a release of obligations under the loan with less impact on the borrower's credit rating and reputation in the industry.

Despite the benefits, there are potential disadvantages for a lender to consider. First, borrowers often challenge the deed after the fact, by claiming that the deed was really a form of disguised mortgage. Second, unlike a foreclosure, a deed in lieu does not eliminate any junior liens against the property.

As appealing as a deed in lieu of foreclosure may be to a borrower, the borrower is also immediately dispossessed of the property. Also, despite being a viable and sometimes advantageous remedy, a borrower cannot force a lender to accept a deed in lieu and title to the property, leaving the lender to continue with its foreclosure and receiving the cash flow from the property.

The typical deed in lieu agreement will obligate the borrower to deliver a deed in lieu (along with an assignment of leases and contracts, rents and security deposits, a bill of sale, customary organizational documents, and legal opinions)--most often in exchange for a release of liability of the borrower and any guarantor or indemnitor. Ideally, for the borrower, the lender will also agree to execute and deliver at closing a covenant not to sue the borrower or any guarantors in connection with the loan, provided that the borrower complies with the deed in lieu agreement. Lenders will also want to include appropriate release language to avoid potential liabilities associated with the property, and a non-merger clause to permit the lender to later foreclose subordinate liens if necessary.

Listen as our authoritative panel discusses the advantages, disadvantages, and common pitfalls of deeds in lieu. The panel will also provide tips on the key issues which must be addressed in a deed in lieu agreement.



  1. Advantages of a deed in lieu
  2. Disadvantages of a deed in lieu
  3. Lender concerns
    1. Assessing environmental issues, delinquent taxes, judgments and other liens and encumbrances
    2. Subordinate liens are not wiped out: non-merger and other title endorsements
    3. Mezzanine and junior lenders: intercreditor agreements
  4. Borrower concerns
    1. Continuing liability after the conveyance
    2. Liability to other lenders and creditors
  5. Early steps for borrower and lender
  6. Negotiating the key terms of the deed in lieu agreement
  7. Bankruptcy issues
  8. Tax issues and implications


The panel will review these and other critical issues:

  • What are the advantages and disadvantages of a deed in lieu from both the lender's and borrower's perspective?
  • How can a lender retain the right to foreclose junior lienholders after taking a deed in lieu?
  • What are the key provisions that should be included in a deed in lieu agreement?
  • How do intercreditor and mezzanine financing arrangements impact a deed in lieu agreement?
  • What are the tax implications of a deed in lieu?
  • What are the bankruptcy concerns that a deed in lieu may trigger?


Bergman, Jason
Jason C. Bergman

Vice President & Senior Underwriting Counsel
Benchmark Title Agency

Mr. Bergman has nearly two decades of experience in the real estate/title insurance industry. Prior to joining...  |  Read More

Hart, Christopher
Christopher J. Hart

Locke Lord

Mr. Hart has more than 30 years of experience representing banks, other lenders and borrowers in a wide range of...  |  Read More

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