Which statement about a deed in lieu on the borrower's debt is true?

• A. It eliminates all debt immediately
• B. It secures the debt with additional collateral
• C. It transfers ownership to the lender to settle the debt
• D. It does not immediately release the borrower from most of the debt

Answer: (D)

A deed in lieu of foreclosure is when the borrower voluntarily transfers the property to the lender to satisfy the mortgage and avoid foreclosure. This action does not automatically wipe out the entire debt. The lender may cancel the mortgage lien, but depending on the loan terms and state law, the lender can still pursue a deficiency if the home's sale price or value doesn’t cover the full loan amount. In practice, whether any remaining debt is forgiven depends on the agreement with the lender, and there can also be tax consequences for debt forgiveness. Because of this nuance, the statement that a deed in lieu does not immediately release the borrower from most of the debt best captures the true outcome of this arrangement.