Most likely what will happen is they are going to set an auction date. Sounds like you should talk to your attorney about what to do, but looks like you'll end up moving.
The thing about loan mods, etc, is that at the end of the day the lender doesn't have to do anything they don't want to do. Pending legislation might make this more difficult for them, but the final result will generally be the same. Bankruptcy can delay, but will not stop a foreclosure action.
Geoff's right--You most likely bought the house as-is and/or had the opportunity to conduct your own inspection. I don't know the details, so can't offer much help there. Let me play devils advocate here: You've been there for several years-Could a case be made that the damage happened after you bought it? How do you know? Do you know when the cracks appeared? Did a previous prospective buyer have an inspection done which showed this damage and submitted the inspection report to BOA before you came along? This issue is a long shot--the real issue here is that you haven't made a payment in 3 years.
Stop being emotionally attached to the house. You haven't made a payment for 3 years, and you'll soon have to leave, unless your attorney can work some magic or find a flaw in the original note. Foreclosure means you won't qualify for another traditional mortgage for 7 years--Short sale is 2 years. If you and your attorney feel short sale is your best option, look into it. I have more short sale info on my website.