Check with your accountant about possible adverse tax consequences. If a debt forgiveness is involved, the lender (although private) may have to send you a 1099 for the amount that was forgiven and then you may have to pay income tax on that amount. Watch what will happen to the Mortgage Forgiveness Debt Relief bill that's currently under consideration (past the House recently and will next be considered by the Senate) as it may change the 1099 requirements if the bill becomes law.
I would still explore alternatives to doing the deed in lieu of foreclosure. If you have equity in the property, I'd try a sale first. Good luck.
I've done lots of owner financing, here is what I learned... The note will still be in your name. The insurance is i your name, the taxes are in your name. Pay them all and everything should be ok. Have the new owners refi as soon as possible. Try to go no more than 24 months and no less than 12 months so that the lenders have a full year's payment history. This makes it easy to refi in at the end of the term and close this account off your credit report.