Voluntary Conveyance

Voluntary conveyance is the transfer of real property from a borrower to the lender or note holder by mutual agreement, rather than through a court-ordered or statutory foreclosure process. The borrower voluntarily signs a deed conveying ownership of the property to the investor, and in exchange, the investor releases the borrower from the remaining mortgage obligation. In the note investing industry, voluntary conveyance is most commonly executed as a deed-in-lieu of foreclosure — often abbreviated as DIL.

How Voluntary Conveyance Works

The process begins when a borrower on a non-performing loan communicates — either directly or through the servicer — that they want to give up the property rather than attempt a loan modification or other workout. The note investor and borrower then negotiate the terms of the transfer.

Key Steps

1. Borrower contact and intent — the borrower indicates willingness to surrender the property voluntarily
2. Title review — the investor orders a title search to identify all liens, judgments, and encumbrances on the property
3. Property valuation — the investor obtains a BPO or inspection to confirm the property's condition and fair market value
4. Agreement drafting — an attorney prepares the voluntary conveyance (deed-in-lieu) agreement specifying the parties, legal description, deficiency waiver, and move-out terms
5. Execution and notarization — the borrower signs the deed, which is notarized
6. Recording — the deed is recorded in the county land records, transferring ownership
7. Property transition — the borrower vacates, and the investor takes possession of the now-REO property

Voluntary Conveyance vs. Foreclosure

Both voluntary conveyance and foreclosure result in the note investor acquiring the property. The differences are significant:

The most critical distinction is the treatment of junior liens. A voluntary conveyance does not wipe out subordinate encumbrances. If the title report reveals second mortgages, judgment liens, tax liens, or HOA liens, those obligations transfer to the new owner. This is why pulling title before accepting a voluntary conveyance is non-negotiable — the investor needs to know exactly what they are inheriting.

When Voluntary Conveyance Makes Sense

A voluntary conveyance is the right strategy when several conditions align:

• The borrower does not want the property. They may have relocated, inherited a property they cannot maintain, or concluded that the debt is not worth carrying. The key is that the borrower has already decided to walk away.
• The borrower is cooperative. Unlike foreclosure, voluntary conveyance requires the borrower to actively participate — signing documents, vacating the property, and engaging in the process.
• The title is clean or manageable. Junior liens and encumbrances that survive the transfer must be economically acceptable. If the property has substantial subordinate debt, foreclosure may produce a better outcome because it extinguishes those liens.
• The property has value. The investor is converting a paper asset (the note) into a physical asset (the property). That trade only makes sense if the property's net value — after accounting for repairs, carrying costs, and any surviving liens — exceeds the investor's total basis in the note.

The Deed-in-Lieu as Leverage

One of the most effective structures in note resolution combines a voluntary conveyance with a forbearance agreement. The borrower enters a payment plan and simultaneously signs a deed-in-lieu that is held in escrow. If the borrower completes the payment plan, the deed is destroyed. If the borrower defaults, the deed is recorded and the investor acquires the property without initiating foreclosure.

This hybrid structure gives the borrower a path to keep their home while providing the investor with a fast, low-cost fallback. It is particularly effective with borrowers who want to stay but have an uncertain ability to pay — the escrowed deed provides both parties with certainty about the consequences of non-performance.

Cash for Keys

Offering the borrower a cash payment — typically $1,000 to $5,000 — to vacate by a specific date and leave the property in broom-clean condition is one of the most cost-effective tools in a voluntary conveyance. Compare a $2,000 cash-for-keys payment to the cost of a formal eviction ($3,000 to $10,000+ in legal fees and months of delay). The cash-for-keys approach aligns incentives: the borrower receives immediate financial relief, and the investor receives a vacant, move-in-ready property without litigation.

Common Pitfalls

• Skipping the title search. Accepting a voluntary conveyance without reviewing title exposes the investor to unknown liens and encumbrances that survive the transfer.
• Omitting the deficiency waiver. The agreement should explicitly release the borrower from any remaining balance. Without this, the borrower may hesitate to cooperate, fearing the investor will accept the property and still pursue the deficiency.
• Failing to record the deed promptly. Until the deed is recorded, public records still show the borrower as the property owner. Prompt recording establishes the investor's ownership and prevents subsequent claims.
• Neglecting occupancy terms. If the borrower is still living in the property, the agreement must address when they will vacate. Without a clear move-out date and enforcement mechanism, the investor may face an eviction proceeding that erodes the cost savings of avoiding foreclosure.