A deed in lieu of foreclosure—often referred to as a deed in lieu—is a deed by which a borrower (mortgagor) transfers fee simple title to a lender (mortgagee) to satisfy a mortgage debt.

A deed in lieu of foreclosure is a substitute for the foreclosure process and a delinquent debtor or mortgagor may avoid paying a deficiency balance (if the home is worth less than the amount owed) and may lessen the impact on their credit report by signing a deed in lieu.

In Washington State, a deed in lieu of foreclosure is a legal instrument where a homeowner voluntarily transfers the ownership of their property to the lender to satisfy the outstanding mortgage debt and avoid the foreclosure process. This option can be beneficial for both parties; the borrower may avoid the negative consequences of a foreclosure on their credit report and potentially be relieved from the obligation to pay any deficiency balance if the property's value is less than the mortgage debt. The lender, on the other hand, can expedite the recovery of the loan balance without undergoing the lengthy and costly foreclosure process. However, it's important to note that lenders are not obligated to accept a deed in lieu of foreclosure and may require the borrower to attempt to sell the property before agreeing to this arrangement. Additionally, there may be tax implications for the borrower, as the forgiven debt could be considered taxable income. Borrowers considering this option should consult with an attorney to understand the full legal and financial implications.