what are the negative effects of deed-in-lieu?

You have to find out if the mortgage company is going to look for a judgment of deficiency for the unpaid amount of the mortgage.  If you give the deed in lieu of them filing foreclosure, all you have really done is saved them the time and expense of the court proceeding, but the effect may be the same.  You might be better off trying to sell the property, even if its a short sale.  you should consult with the mortgage company and make sure that you know what will happen after you give them the deed, and after they sell the property.  Good luck.