So having a borrower sign a deed in lieu AS A CONDITION FOR MAKIMG A LOAN is not going to stand legal challenge.  

Ideally, you want something in writing, but that is probably unlikely since no one will want to stand behind a not-yet-final number.

Quote from @Dave Allen: Quote from @Zeke Liston: Quote from @Dave Allen: I'm in a bit of a situationMy wife and her parents are selling a duplex they own together.My wife is trusting me to re invest into cash positive investments.We could stand to take as much as a quarter million, and tax free since we lived in the property 2 of the last 5 years.What are some suggestions for markets that would provide cashflow?

Normally the escrow agent will want mutual sign off even if its clear the contract terms indicate one party should be awarded the escrow funds.

Can anyone recommend some stand up lenders I can speak to?

I believe it's a great and thriving community with unique aspects that make it stand out from other markets in Texas. 

Not to say that you'd pick crappy materials, but contractors with experience have manufacturers and suppliers that they know guarantee their products and that helps them know they can stand behind their work. 

Sometimes a few listing tweaks can really help you stand out.

Based on your description, Party 1 seems like the safer choice.

Before any mediated settlement is binding, the parties to the dispute must agree to the settlement, in writing.