Have a Tax Question? Ask a Tax Expert
If you have been unable to make your monthly payments and your home has been on the market without success of sale, this form of foreclosure may be what is necessary to get you back on track. Deed in lieu allows you, the borrower, to transfer your property to your lender voluntarily and your debt is often forgiven. This procedure will not save your home, but it will help the possibility of you getting another loan in the future. It will also help prevent the lengthy and costly procedure of a foreclosure. It is a negative strike on your credit, but not as bad as a foreclosure.
Please see below for information re: Foreclosures
Publication 4681 (2009), Canceled Debts, Foreclosures, Repossessions, and Abandonments
I hope this helps.