[1][2] Advantages to a lender include a reduction in the time and cost of a repossession, lower risk of borrower revenge (metal theft and vandalism of the property before sheriff eviction), and additional advantages if the borrower subsequently files for bankruptcy.
In order to be considered a deed in lieu of foreclosure, the indebtedness must be secured by the real estate being transferred.
The settlement agreement must have total consideration that is at least equal to the fair market value of the property being conveyed.
Sometimes, the lender will not proceed with a deed in lieu of foreclosure if the outstanding indebtedness of the borrower exceeds the current fair value of the property; in other cases, a lender will agree since it will likely end up with the property anyway through the costly foreclosure process.
The Home Equity Theft Prevention Act in New York has created some confusion regarding this frequently used method of settlement.