Under a deed in lieu of foreclosure, what happens to the loan note?

• A. It is canceled
• B. It remains payable
• C. It is transferred to a third party
• D. It is securitized

Answer: (A)

In a deed in lieu of foreclosure, the borrower hands the property to the lender in exchange for the lender releasing the mortgage lien and treating the debt as satisfied. Because the lender accepts the deed as full payment, the loan note is canceled and the borrower is no longer personally liable for that debt. This avoids the foreclosure process and its costs for both parties, though there can be a waiver of any deficiency in some cases.

The other options don’t fit this arrangement. The debt isn’t left payable once the deed is given, nor is the note typically transferred to another party, and securitization isn’t the direct outcome of a deed in lieu.