I'm sorry to hear about your current predicament, however you are not alone. There are thousands of people like you struggling. You are at a cross roads where you are going to have to make some tough decisions soon. Here is what I would do:
1) Contact a HUD approved counselor for your area (link below). They will give you the skinny on whether you might qualify for new loan modification or if a short sale or foreclosure is the option for you. They can work directly with the lender for you on a loan modification and their services are free of charge since they are nonprofits.
2. Contact an accountant or CPA to learn about any tax implications if you go the short sale/foreclosure route.
3. Contact an attorney for legal advice to find out if there will be any deficiencies owed on the property if you go the short sale/foreclosure route.
If you end up having to do a short sale contract a Realtor that is experienced in handling these because not all Realtors are. And remember there are lots of people here that can help ease your anxiety by answering most of your questions. We're here to help :)
It's best to get an attorney involved to help you. Call Kelly at 602-619-0870. Please tell her Kristine asked you to call. She can help answer any questions and provide you with low cost, or no cost attorneys.
I work with a company that specializes in helping with situations like yours in the Phoenix area, no cost to you. Leave a message with your number and best time to call you back if I am not able to answer:
Many homeowners are faced with this situation. You missed payments on your loan mod so you are now disqualified from the program that is understandable as that is the way it works. The bank has given you some options it is up to you to decide whether you wish to continue obtaining additional debt to hang onto a property that is already over incumbered.
Borrow the 10K to catch up on your mortgage and begin making your payments based on the original terms of your loan and find a way to also pay back the 10K. Here is where you need to be honest with yourself and ask - Can I really afford this or am I just postponing the inevitable? How underwater are you should also play a big factor in your decision.
Short sale, you will no longer own your home but at least it did not go to foreclosure. In two years, assuming you have restored your credit after 13 months of missed payments and have some savings you can purchase again for whatever the market value is.
Do not let the bank foreclose. This will be on your credit report and it will be a very long time for you to recover.