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 Kentucky, a deed in lieu of foreclosure is a legal instrument where a borrower voluntarily transfers the ownership of their property to the lender to satisfy the outstanding mortgage debt and avoid the foreclosure process. This arrangement can be beneficial for both parties as it allows the borrower to avoid the negative consequences of a foreclosure on their credit report and potentially absolve them from any deficiency balance if the property's value is less than the debt owed. For the lender, it provides a quicker and often less expensive resolution compared to foreclosure. 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. Additionally, the agreement must be entered into voluntarily and both parties should agree on the terms, which should be documented in writing. Borrowers considering a deed in lieu of foreclosure should consult with an attorney to understand the implications, ensure that the agreement is structured properly, and to negotiate terms that might include a release from any deficiency judgment.