A deed in lieu of foreclosure is a deed instrument in which a borrower (mortgagor) conveys all interest in a real property to the lender (mortgagee) to satisfy a loan that is in default and avoid foreclosure proceedings.

The deed in lieu of foreclosure offers several advantages to both the borrower and the lender. The main advantage to the borrower is that it immediately releases him/her from most or all of the personal indebtedness associated with the defaulted loan. The borrower also avoids the public embarrassment of a foreclosure proceeding and may receive more generous terms than he/she would in a formal foreclosure. Advantages to a lender include a reduction in the time and cost of a repossession, and additional advantages if the borrower files for bankruptcy.

Basically; In this process you turn over the property to the lender and they release you from the loan. Most banks agree to this process, as it saved them time and money to hire attorneys and file legal proceeding to foreclose of the property.

This still has some implication on your credit report, it does not show as you paid the house, but as a deed in lieu of foreclosure-- but it's better than a foreclosure on your credit!