15-1401.Deed in Lieu of Foreclosure.

Not every default ends in a courtroom. Section 15-1401 recognizes that a mortgagor and mortgagee can agree, after a default, to terminate the mortgagor's interest in the mortgaged real estate outside of foreclosure. The mortgagee, or its nominee, may accept a deed from the mortgagor in lieu of foreclosure, though that deed still takes the property subject to any other claims or liens against it.

Accepting the deed carries a real consequence: it relieves everyone who owed payment or performance on the secured debt -- including guarantors -- from personal liability, unless someone signs a contemporaneous instrument agreeing not to be relieved. At the same time, the statute protects the mortgagee's lien position: accepting a deed in lieu, whether in the mortgagee's own name or a nominee's, doesn't merge the mortgagee's interest as mortgagee with the interest it acquires under the deed.

The section also guards against accidental acceptance. A mortgagor can't force a deed in lieu on the mortgagee just by signing and tendering it, or even by recording it -- the mortgagee has to accept before any of these consequences follow.