In a short sale you sell the home to a buyer for less than you owe, with the lender's approval; in a deed in lieu of foreclosure you sign the home over to the lender and move out. Both need the lender's agreement, both can come with up to $7,500 in relocation money on Fannie Mae and Freddie Mac loans, and Fannie Mae's wait to buy again is 4 years after either. In Utah, a lender's suit for the shortfall after a short sale is barred unless filed within three months after the reconveyance is recorded (Utah Code 78B-2-313); for a deed in lieu, the written agreement controls.
At a glance
| Relocation money, Fannie Mae and Freddie Mac | Up to $7,500 for a short sale or deed in lieu, with conditions |
|---|---|
| FHA relocation money | Up to $3,000 (ML 2025-12, effective October 1, 2025) |
| Short sale deficiency deadline in Utah | 3 months after the reconveyance is recorded (78B-2-313) |
| Fannie Mae wait to buy again | 4 years after either (2 with extenuating circumstances) |
| Herriman typical value | $601,499, Zillow, August 2026 |
What is a deed in lieu of foreclosure?
A deed in lieu of foreclosure is an agreement in which you transfer ownership of your home to the lender, usually through its servicer, and move out, in return for being released from the loan. The CFPB describes it as using a deed to turn over ownership to your mortgage servicer, which may mean you don't have to pay the remaining balance, called a deficiency. Fannie Mae calls its version a Mortgage Release.
A short sale gets to a similar end by a different route: you market the home, a buyer pays the price the lender approves, and the lender accepts the proceeds and releases its lien. The basics are in how a short sale works and why lenders agree. The main practical difference is that a short sale needs a buyer and a deed in lieu does not.
Both are alternatives to letting the home go to a trustee sale. If you have equity, neither is usually the best fit, and a regular sale of your Herriman home may pay off the loan in full.
How does a deed in lieu of foreclosure work?
Apply through your servicer
You ask your servicer for a deed in lieu as part of a loss mitigation application, the same packet that covers modifications and short sales. Federal rules require the servicer to review a complete application received more than 37 days before a foreclosure sale for every option it offers and to answer in writing within 30 days (12 CFR 1024.41). Some investors want to see a short sale attempt first.
The lender checks title and other liens
A lender taking the home back wants it free of other claims. FHA and Freddie Mac both require clear and marketable title. Second mortgages, HELOCs, HOA liens and judgment liens have to be released or paid, and the lender may refuse if they can't be cleared.
You sign the deed and leave the home
Once approved, you sign a deed in lieu agreement and a deed transferring the home. The agreement sets the move-out date, the condition you leave the home in and whether the remaining balance is released. FHA's agreement must acknowledge that borrowers who comply will not be pursued for deficiency judgments, and Fannie Mae's Mortgage Release requires the servicer to release the borrower from the deficiency.
How a short sale differs in practice
A short sale adds a marketing stage. Fannie Mae and Freddie Mac want the home actively listed on the MLS for at least five consecutive days, including a weekend, before the servicer reviews an offer. FHA gives a seller four months from its approval to participate to get a signed contract, and the home must be on the MLS for at least 15 days before offers are evaluated. A deed in lieu skips that stage, which is why it can suit an owner who has already listed without a workable offer. Each short sale step, from the lender package to the approval letter, is set out in the Utah short sale process, step by step.
Short sale vs deed in lieu side by side
These values come from the published rules of each loan investor. Private and portfolio lenders set their own terms, so ask your servicer who owns or insures your loan.
| Question | Short sale | Deed in lieu |
|---|---|---|
| Who buys the home | A buyer you find, at a price the lender approves | No buyer; the lender takes title |
| Credit report | Settled account for seven years (Experian) | Mortgage labeled settled, much as a short sale (Experian) |
| Deficiency in Utah | Suit barred unless filed within 3 months after the reconveyance is recorded, except fraud or a signed deficiency agreement (78B-2-313); Fannie Mae, Freddie Mac and FHA release it when their rules are met | Set by the agreement; Fannie Mae and FHA agreements release it for borrowers who comply |
| Timing | Depends on a buyer and lender approval; must close before the trustee sale | No marketing needed, but FHA requires a short sale attempt first |
| Taxes | Forgiven balance generally taxable unless an exclusion applies (IRS) | Same rule for any forgiven balance (IRS) |
| Wait to buy again (Fannie Mae) | 4 years, 2 with extenuating circumstances | 4 years, 2 with extenuating circumstances |
| Wait to buy again (FHA) | Generally 3 years; exception if current for the prior 12 months | Generally 3 years |
| Relocation money | Up to $7,500 (Fannie Mae, Freddie Mac), up to $3,000 (FHA) | Up to $7,500 (Fannie Mae, Freddie Mac), up to $3,000 (FHA) |
For comparison with doing nothing, the page on a short sale compared with a foreclosure sets both against a trustee sale.
Utah rules that apply to both
The foreclosure clock keeps running
Asking for a short sale or a deed in lieu does not pause a Utah foreclosure by itself. A servicer generally cannot record the first notice until the loan is more than 120 days delinquent (12 CFR 1024.41), and the trustee then waits at least three months after the notice of default before giving notice of sale (Utah Code 57-1-24). Within those three months you can still reinstate by paying the past-due amount plus costs and fees (57-1-31). A complete application received more than 37 days before the sale stops the sale until the servicer decides it. After a trustee sale there is no right of redemption (57-1-28), so either option has to be finished before then. The stages are set out in how foreclosure works in Utah.
Deficiency after a short sale in Utah
Utah Code 78B-2-313 bars a lender's suit to recover the shortfall from a short sale of a single-family home unless it is filed within three months after the release of mortgage or reconveyance of trust deed is recorded. The statute defines a short sale as a sale by the owner, with the lender's consent, in which the lender takes less than the balance and releases or reconveys. The bar does not apply if the owner committed fraud or signed an agreement to pay some or all of the deficiency.
Deficiency after a deed in lieu
A deed in lieu is not a sale by the owner to a buyer, so do not assume the 78B-2-313 deadline covers it. It is also not a trustee sale, which is what Utah's three-month deficiency rule and fair-market-value cap in 57-1-32 address. With a deed in lieu, the written agreement is what protects you: look for language releasing you from any remaining balance, and have a Utah attorney read it before you sign.
Deed in lieu rules by loan type
Fannie Mae Mortgage Release
Fannie Mae's Servicing Guide offers three exit options: an immediate move, a three-month transition with no rent payment on a principal residence, or a twelve-month lease at market rent. It pays $7,500 in relocation help when the home was the principal residence at the evaluation notice, reduced by help from other sources or damage deductions. Payments to second-lien holders are capped at $6,000 in total, and the servicer must release the borrower from the deficiency.
Freddie Mac Standard Deed-in-Lieu
Freddie Mac offers up to $7,500 in relocation assistance to homeowners who meet its requirements, and the borrower must be able to convey clear and marketable title. On Freddie Mac short sales, second-lien holders can share up to $6,000 from the proceeds only if they agree in writing to waive any deficiency claim.
FHA deed in lieu
Under HUD Mortgagee Letter 2025-12, effective October 1, 2025, an FHA borrower must have tried a pre-foreclosure sale (FHA's short sale) first, meet its requirements and be at least 61 days delinquent. Owner-occupants who move out and meet the agreement's terms can get up to $3,000 in relocation help, which is not paid if the home is still occupied at conveyance. Details of the FHA short sale are on the FHA pre-foreclosure sale page.
VA loans
VA says a short sale and a deed in lieu each could result in a loss or reduction of your future home loan benefit, and that you would need to repay VA's loss to restore it. Ask your servicer for VA's current deed in lieu terms and relocation amount.
Why would a lender reject a deed in lieu?
Second mortgages and other liens
A lender that takes the home by deed takes it subject to junior liens, so it usually wants them cleared first. Fannie Mae caps total payments to subordinate lienholders at $6,000, and a second-lien holder owed more may refuse to release. Herriman homes in an HOA add another lien: a Utah HOA has a lien for unpaid assessments, collection costs and certain fines (57-8a-301), so ask the association for a payoff statement early.
Title problems
Judgments, tax liens or recording errors can make title less than clear and marketable, which both FHA and Freddie Mac require. A short sale has the same problem, but a buyer's title company works through it as part of closing.
A short sale was not tried first
FHA requires a pre-foreclosure sale attempt before a deed in lieu, and many servicers prefer the cash a sale produces. If the home can sell, expect to be asked to list it.
Pros and cons of a deed in lieu
Pros
- No showings, buyer or purchase contract to manage.
- A fixed move-out date and, with Fannie Mae, a possible three-month rent-free transition or a twelve-month lease.
- Relocation money of up to $7,500 (Fannie Mae, Freddie Mac) or $3,000 (FHA) when the conditions are met.
- A release of the remaining balance when the agreement says so.
Cons
- Second liens and title problems often block it.
- FHA requires a short sale attempt first.
- The credit label and Fannie Mae waiting period are the same as a short sale, so there is no credit advantage.
- Utah's three-month short sale deficiency deadline is written for short sales, so your protection rests on the agreement's wording.
- Any forgiven balance may be taxable.
The same weighing for a short sale is on the short sale pros and cons page, which also covers relocation assistance in more depth.
Credit, taxes and buying again
Credit
Experian says a deed in lieu leads to the mortgage being labeled settled, much as a short sale would, and a short sale shows as settled for seven years. FICO research from 2011 found no significant difference in score impact between a short sale, deed in lieu and foreclosure when payments had been missed. More is on the credit and waiting period page.
Taxes
The IRS says forgiven debt is generally taxable unless an exclusion applies, and you must report it even if a Form 1099-C doesn't arrive. The federal exclusion for a main home covers only debt discharged before January 1, 2026, or under a written arrangement made before that date. The insolvency exclusion, claimed on Form 982, has no such end date.
Waiting periods
Fannie Mae waits 4 years after either (2 with extenuating circumstances). Freddie Mac's manual-underwriting periods are 48 months after either, or 24 months with extenuating circumstances, counted from the deed in lieu's execution or the short sale's completion. FHA generally waits 3 years after either, with an exception after a short sale for borrowers who were current for the 12 months before it.
Example: a Herriman home worth $601,499
Zillow's typical home value for Herriman city was $601,499 in August 2026. This example is an illustration, not a real transaction. The owner has a Fannie Mae loan with a $650,000 balance, a $30,000 HELOC and some unpaid HOA assessments, and has missed several payments.
- Short sale. A buyer offers $601,499. Before selling costs, the first lender is $48,501 short and the HELOC lender is short its full $30,000. Fannie Mae allows up to $6,000 in total to subordinate lienholders, so the HELOC lender must accept that or less, and the HOA payoff is handled at closing.
- Deed in lieu. No buyer is needed, but the same HELOC and HOA lien still have to be cleared before Fannie Mae takes title. If the HELOC lender refuses, the deed in lieu stalls.
If the release is approved, either path can qualify for Fannie Mae's $7,500 relocation payment when the home is a principal residence and no cash contribution is required. The second lien is often what decides which option can close.
Timing matters too. If the notice of default on this Herriman home was recorded in June, the trustee cannot give notice of sale until at least September (57-1-24), and the owner can still reinstate until three months after recording (57-1-31). A complete application sent well before the 37-day mark keeps the sale from going ahead while the servicer decides, which gives a short sale room to close or a deed in lieu time to be signed.
Is a deed in lieu better than a short sale?
Not usually, and the answer depends on the loan and the liens. A short sale tends to fit when the home can sell before the trustee sale and there are second liens to settle. A deed in lieu tends to fit when the home has been marketed without a workable offer, title is clean, and you want a set move-out date. Under FHA rules the order is fixed: short sale first, deed in lieu second.
Neither is guaranteed. The lender decides, and the foreclosure timeline keeps running until a written agreement says otherwise. Before signing either agreement, have a Utah attorney review its deficiency language (the Utah State Bar's LicensedLawyer.org directory and Utah Legal Services, for those who qualify, are places to start), ask a CPA about any forgiven balance, and consider a free session with a HUD-approved housing counselor.
Frequently asked questions
What is a deed in lieu of foreclosure agreement?
It is the written contract in which you deed your home to the lender and move out by a set date, and the lender agrees to accept the home in place of foreclosing. It spells out the move-out date, the home's condition, any relocation payment and whether you are released from the remaining balance. FHA's agreement must state that compliant borrowers will not be pursued for deficiency judgments.
Is a deed in lieu better than a short sale?
Rarely for credit, since Experian says both show the mortgage as settled and Fannie Mae's wait to buy again is 4 years after either. A deed in lieu can be simpler when there is no buyer and title is clean. A short sale usually works better with second liens, and FHA requires a short sale attempt before a deed in lieu.
What are the downsides of using a deed in lieu?
You give up the home with no sale proceeds, lenders often refuse when there are second mortgages or title problems, and the credit impact is similar to a short sale. Any forgiven balance may be taxable, and in Utah the short sale deficiency deadline in 78B-2-313 is written for short sales, so your protection depends on the agreement releasing the balance.
Why would a seller want a short sale?
A short sale lets you avoid a trustee sale, choose the buyer and timing, and possibly receive relocation money of up to $7,500 on Fannie Mae and Freddie Mac loans. In Utah, a lender's suit for the shortfall is barred unless filed within three months after the reconveyance is recorded, unless fraud or a signed deficiency agreement is involved.
What is the difference between short sale and foreclosure?
A short sale is a sale you arrange with the lender's approval for less than you owe. A foreclosure is the trustee's public auction after a notice of default and at least three months' wait under Utah Code 57-1-24, with no redemption afterward. Fannie Mae's wait to buy again is 4 years after a short sale and 7 after a foreclosure.
Can a buyer back out of a short sale?
That depends on the purchase contract and its contingencies, including any terms about waiting for lender approval. Utah's state-approved forms list has no short sale addendum, so the contract wording matters. A deed in lieu avoids this risk because no buyer is involved, which is one reason lenders turn to it after a short sale falls through.
Does Utah allow a deed in lieu of foreclosure?
Yes, a deed in lieu is a private agreement between you and the lender, so it is available in Utah when the lender agrees. Utah's trust deed foreclosure rules keep running until that agreement is signed, and no redemption is possible after a trustee sale under 57-1-28. Have a Utah attorney confirm the agreement releases any deficiency.
Sources
- CFPB: Avoid foreclosure
- Utah Legislature: Utah Code 57-1-24
- Utah Legislature: Utah Code 57-1-28
- Utah Legislature: Utah Code 57-1-31
- Utah Legislature: Utah Code 57-1-32
- Utah Legislature: Utah Code 78B-2-313, Action to recover deficiency after short sale
- Utah Legislature: Utah Code 57-8a-301 (HOA lien)
- eCFR: 12 CFR 1024.41 Loss mitigation procedures
- Fannie Mae Servicing Guide: D2-3.3-02, Mortgage Release (Deed-in-Lieu of Foreclosure)
- Fannie Mae Servicing Guide: D2-3.3-01, Fannie Mae Short Sale
- Freddie Mac Single-Family: Deed-in-Lieu
- Freddie Mac Seller/Servicer Guide: Section 9208.1
- Freddie Mac Seller/Servicer Guide: Section 9208.2
- Freddie Mac: Standard Short Sale FAQ
- HUD: Mortgagee Letter 2025-12
- HUD: Handbook 4000.1 (May 20, 2024)
- VA.gov: VA help to avoid foreclosure
- Experian: Short Sale vs. Foreclosure: What's the Difference?
- FICO: Research Looks at How Mortgage Delinquencies Affect Scores
- Fannie Mae Selling Guide: B3-5.3-07, Waiting Periods and Re-establishing Credit
- Freddie Mac Seller/Servicer Guide: Section 5202.1, Credit reputation
- IRS: Topic no. 431, Canceled debt
- IRS: Publication 4681 (2025)
- Utah Department of Commerce: State Approved Forms
- Utah State Bar: Tips on Finding a Utah Attorney
- Utah Legal Services
- CFPB: Find a housing counselor
- Zillow Research: Home Value Index, cities (August 2026)