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Last Updated: 4/6/2018

Deed in Lieu of Foreclosure

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A  deed in lieu of foreclosure occurs when the mortgagor (i.e. the borrower) conveys their interest in real property to the mortgagee (i.e. the lender) in order to avoid foreclosure proceedings.

A deed given in lieu of foreclosure to a mortgagee or their designee that includes “nonmerger” language should be taxed as follows:

Fair Market Value of real property being conveyed minus the value of the mortgage and other liens that are not removed as part of the transaction.

 Example:

FMV of real property $ 150,000
Loan Balance            $ 165,000
    ($   15,000)
Deed in Lieu        Patrick to ABC Bank
 
Deed Tax*            $ 1.65 ($ 1.70 Hennepin/Ramsey)

Non-merger language protects the lender by allowing a foreclosure in the event claims are brought forward by subordinate lienholders. 

* When the net consideration for a conveyance is less than $ 500, the tax due is $ 1.65.