Can I do a deed-in-lieu of foreclosure if I have an FHA loan?

Keith Gumbinger

Q: Wells Fargo said I cannot do a deed-in-lieu of foreclosure because I have an FHA-insured loan. Is this true?

A: The FHA program utilizes deed-in-lieu (DIL) transactions as a portion of its toolkit, just as any other servicer would.

However, according to HUD, borrowers are not eligible if you can "financially make their mortgage payments.”  

There are also some other particulars outlined by HUD. They are:

The Borrower and the Mortgagee must execute a DIL Agreement in writing.

HUD does not require a specific format for documenting a DIL Agreement. The Mortgagee must ensure that the DIL documentation is in compliance with allapplicable laws and regulations.

According to the HUD Handbook 4000.1

DIL Agreement Terms

The Mortgagee must ensure that the DIL Agreement contains the following:

  • Certification that the Borrower does not own other Property subject to a Mortgage insured by or held by HUD;
  • the Transfer Date;
  • notification of possible income tax consequences;
  • acknowledgement that Borrowers who comply with all requirements of the Agreement will not be pursued for deficiency Judgments;
  • a statement describing the physical condition in which the Property will be conveyed;
  • agreement with the Borrower to convey the Property vacant and free of Personal Property, unless HUD has approved an Occupied Conveyance;
  • itemization of keys, built-in-fixtures, and equipment to be delivered by the Mortgagee on or before the Transfer Date;
  • evidence that utilities, assessments, and HOA dues are paid in full by the Transfer Date, unless otherwise agreed to by all parties; and
  • the amount of consideration payable to and/or on behalf of the Borrower will not exceed $2,000.

If you cannot meet these requirements and other requirement, you may not be eligible for a deed-in-lieu for your FHA-backed loan.

You can contact the FHA's National Servicing Center with questions at 800-225-5342.

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Keith Gumbinger
Keith Gumbinger
Mortgage Expert
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About Keith: Mortgage market observer and analyst with 35 years experience... (more)
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