Legal Question in Real Estate Law in California

A deed in lieu of foreclosure is exactly what it says. You deed them the property to save them the trouble and expense of foreclosing. The only tricky part is to make sure it is a true deed in lieu deal. Foreclosure by trustees sale (99.0% are trustees sales, not true court foreclosure proceedings) wipes out the banks right to look to you for any shortfall. You need to make sure that you get a full release in exchange for the deed if you go the deed in lieu route (which most banks are happy to do, since they arent' really giving up anything they would have if they had to foreclose, and they're saving time and money).

The previous answer is good advice. Banks rarely pursue borrowers for deficiencies and in many cases cannot. You are probably safe if you have only a purchase-money first and have kept the place in good repair, paid the taxes and HOA dues, and didn't commit loan-application fraud. A deed in lieu is somewhat preferable to a foreclosure provided you don't sign anything that gives the lender a right to seek a deficiency which they would not have a right to seek in a foreclosure by trustee sale.

If you proceed by way of deed in lieu of foreclosure, you need to realize that the deed to the bank is exactly that, it is not a foreclosure. This would not trigger your anti-deficiency protection of Code of Civil Procedure section 580d.

You may still be protected, however, by Code of Civil Procedure section 580b, as pointed out by Mr. Whipple. This would depend on whether or not your financing arrangement qualified as a "purchase money mortgage." I would need more facts to make that determination.