A broker in Indiana is advising a seller whose property is about to be foreclosed. The seller asks whether she can deed the property directly to the lender to avoid the foreclosure process. The lender agrees to accept the deed. Which of the following correctly describes this arrangement and its effect under Indiana law?
Correct Answer
A) This is called a deed in lieu of foreclosure; it extinguishes the mortgage lien and typically releases the borrower from further personal liability if the lender agrees
A deed in lieu of foreclosure is a voluntary conveyance of the property from the borrower to the lender as an alternative to formal foreclosure proceedings. Under Indiana law, this is a recognized and legally permissible arrangement. The deed in lieu extinguishes the mortgage lien (since the lender now owns the property), and the lender typically — but not always — agrees to release the borrower from further personal liability on the promissory note as part of the negotiated agreement. The key advantage is avoiding the time and expense of judicial foreclosure. However, the lender is not required to waive deficiency rights unless explicitly agreed upon in writing.
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