A deed-in-lieu of foreclosure means that you deed the home back to the lender instead of forcing the lender to foreclose on the home. The most common characteristics of a deed-in-lieu are:
1. A very severe credit hit (comparable to a foreclosure).
2. Impossible to accomplish if you have two different lenders on a first and second mortgage.
3. The deficiency is extinguished, but the lender often requires you to sign a note for some part of the difference.
4. The forgiveness of debt (if the lender does forgive the balance) may be taxable.
As was true with short sales, a better path is often to (1) file bankruptcy first (to avoid the tax liability) and (2) execute the deed-in-lieu second.