If you’ve sold a SFR and taken back a note (secured by DOT) that’s now in default you dare NOT now take-back a Deed-in-Lieu* from that B !
Well if you do so, any & all other liens that B might have put on house are NOT wiped out and are still owed against the title to the house ! So now, the only smart option for you is formal foreclosure where all other lien-holders are given notice and the opportunity to step forward and buy that property out of foreclosure.
My Trustee foreclosure co is this week having to conduct a Trustee’s Sale @ the county courthouse…and I hold an unrecorded DIL from the long-gone B that I dare not use because she might at last-minute add another subordinate lien on that SFR. As with 99% of my trustee auctions, I anticipate no other bidders but my S so after the auction if Title Co shows no other liens and no other bids come in, I may elect to have my S/Beneficiary accept that DIL.
*DIL means unpaid S would accept a Deed in lieu of full, formal, either judicial or non-judicial (if permitted by your state law) foreclosure…e.g. B gives you a call and says “hey I know I owe you for last umpteen payments so I’d be willing to give a deed so you don’t have to foreclose on me”