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 Iowa, a deed in lieu of foreclosure is a legal instrument where a borrower voluntarily transfers 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 as it allows the borrower to avoid the negative consequences of a foreclosure on their credit history, and it can expedite the process for the lender compared to a traditional foreclosure. Iowa law may allow for the cancellation of any deficiency balance—the difference between the sale price and the amount owed—if both parties agree to it in the deed in lieu agreement. However, it's important to note that lenders are not obligated to accept a deed in lieu of foreclosure and may proceed with foreclosure if it is in their financial interest. Borrowers considering this option should consult with an attorney to understand the potential tax implications and ensure that the agreement with the lender fully releases them from any further liability on the mortgage debt.