Certified Residential Appraiser Practice Exam

What does a deed in lieu of foreclosure entail?

1. Giving the title to a new buyer

2. A legal process leading to eviction

3. The owner voluntarily transfers the title to the lender

4. Transfer of property through auction

The correct answer is: The owner voluntarily transfers the title to the lender

A deed in lieu of foreclosure is a legal arrangement where a property owner voluntarily transfers the title of their property directly to the lender, typically in order to avoid the formal foreclosure process. This option is usually considered when the homeowner is unable to continue making mortgage payments and seeks to relieve themselves of the financial burden and potential damage to their credit from a foreclosure. This process benefits both the borrower and the lender. The owner is able to resolve the debt without going through a lengthy foreclosure process, which can be costly and time-consuming. For the lender, accepting the deed can be a quicker means of taking possession of the property than conducting a foreclosure. It also allows the lender to potentially sell the property without the added complications and costs associated with a foreclosure. The other choices do not accurately reflect what a deed in lieu of foreclosure entails. Giving the title to a new buyer refers to a sale, while a legal process leading to eviction highlights a situation involving a rental, and transferring property through auction implies a sale process rather than a voluntary transfer to the lender.