You signed a document a few years ago called a note and a mortgage. You thought that you could pay the lender. Everything was booming – you made good money at your job. Raises were good. All of a sudden there is a crash. The Dow Jones Industrial Average was down over 50% of its value.
Wall Street needed to please its investors, so there were layoffs and restructuring of companies. It seems as though everyone felt the belt tightening.
You lost your job, you lost income, your investments went sour, or whatever the reason, you cannot make a payment to the lender. You get the document that you never thought you would ever get – the summons and complaint. The bank is suing you in a foreclosure action. You feel embarrassed about your situation and you do not know what to do. You are beyond the point of borrowing money from a family member or friend because you have already done this for the previous six months. Most certainly, you are stressed beyond belief and you need help. So, what are your options?
Refinance
There are three (of what I call) “obstacles” that someone must overcome in order to refinance: Number 1: you must have good credit; Number 2: your house must appraise; Number 3: you must be able to have good substantiated income. If any of the above “obstacles” fail, you are probably not going to be able to refinance.
Foreclosure
Foreclosure is the legal proceeding in which a mortgagee, or other lien holder, usually a lender, obtains a court ordered termination of a borrower’s interest. A lender obtains a security interest from a borrower who mortgages or pledges an asset like a house to secure the loan. If the borrower defaults, the lender may have the right to repossess the property through this legal proceeding.
If you let the foreclosure procedure take its course and do nothing, the lender’s remedy for your failure to pay is ultimately to repossess the home. One of the pitfalls is that if a lender forecloses and the value of the home does not satisfy the mortgage debt, the lender can sue you for a deficiency judgment. In other words, if you have additional assets, the lender can attempt to satisfy a shortfall, if any, by obtaining a judgment against you personally.
Sale/Short sale
You attempt to sell your house. If you owe more than what your house is worth it is called a short sale.
A short sale means the seller’s lender is accepting a discounted payoff to release an existing mortgage.
You may request from your lender that it accepts less money than 
what is owed in the hopes that your debt obligation will be satisfied. This can be a lengthy negotiation and can take several months to accomplish.
There are instances where some lenders request notes (an additional personal obligation to pay) for the balance owed on the debt. Additionally, tax laws on the forgiveness of debt may not be so favorable for you.
Your ultimate goal is to unload the property with debt forgiveness.
Deed in Lieu of Foreclosure
Simply put, a deed in lieu of foreclosure is the transfer of the deed of your home from you to the lender. 
This option must be accepted by the lender. Many lenders prefer that you attempt a short sale of the property prior to fulfilling this request. One of the obvious reasons for the short sale preference is that lenders are not in the position of maintaining properties or managing the day-to-day operations of owning a property.
Bankruptcy
Bankruptcy is a legal proceeding where an individual or organization has declared its inability to pay its debt obligations to creditors.
There are two types of bankruptcy protection that a homeowner can file for in order to stop a foreclosure proceeding or absolve himself/herself of debts: 1) Chapter 7 filing which permits the discharge of personal debt obligations, and 2) Chapter 13 which permits the reorganization of debt.
Modification
A lender works out an agreement with you for a lesser payment such that you will be able to stay in your home and repay the loan back to the lender. If you want to keep your home, this may be your best option, as some lenders are willing to renegotiate the terms of your loan to make it more affordable to you. This, too, may be a time consuming process and usually involves a trial period for you to make payments.
Litigate
Perhaps, there is a defense to your default, i.e., your loan may be voidable due to a violation of a federal or state law.
The best option for you depends on your specific factual scenario. Please consult with your tax advisor and/or attorney to determine the best option for you.