Is it possible to dissolve an owner financed mortgage

[Jon Pate]

In this scenario, lets assume the mortgagee and mortgagor are both in agreement and would like to terminate the existing mortgage agreement (rather than pursue foreclosure). Is this even a feasible solution? I could not find anything related to my question after searching bigger pockets or google, which leads me to believe this may not be possible. 

The situation would be taking place in Birmingham, Alabama. 

Obviously, I am not looking for actual legal advice, just curious if anyone has ever attempted this. 

[Denise Evans]

Yes, this is called a "deed in lieu (that's French for "instead") of foreclosure" in Alabama.  People just shorten this and call it a "deed in lieu" or a "DIL."  In some states, a DIL is the same as a foreclosure. In other words, if there is a second mortgage on the property, and/or a tax lien, and/or a judgment lien, they are all wiped out by the DIL, the same as if there had been a foreclosure.  This is NOT true in Alabama.  A DIL in Alabama allows all junior liens to remain on the property.  Be sure to get a title commitment before going forward, and then also pay for title insurance and make sure the title insurance covers "the gap."  Here's the problem Even if there are no junior liens at 3:30 on Friday afternoon, but one gets recorded at 4:40 and closing takes place at 4:50 and the deed recorded the same day, the junior lien got recorded before the deed. Technically, it would remain on the property. This rarely happens. Most insurance companies insure "the gap" so even if this happens, the title insurance would take care of the problem. Some do not insure the gap. That's why you need to ask.

A DIL shows up as a foreclosure on the borrower's credit report. A borrower might prefer to just deed the property to the lender and simultaneously have the note marked "paid in full" and a mortgage satisfaction recorded in the real estate records. This is a matter for negotiation between the parties. An FDIC-insured bank is not allowed to do this because of issues related to accounting and transparency. A private lender can.