A deed in lieu of foreclosure is a deed the borrower voluntarily signs over to the lender to satisfy a defaulted loan, avoiding a foreclosure sale. Lenders sometimes still pursue a deficiency or report it on credit history much like a foreclosure, so agreeing to one is not automatically better than letting the sale proceed, and it is worth getting the lender's terms in writing first.
Why it matters
Handing over the deed does not erase what you owe unless the lender agrees in writing to waive the difference.
General information, not legal or tax advice.