You should definitely consult an attorney on how to proceed. I would highly suggest you work with the lender to avoid foreclosure. There are options, you just need to establish communication. I have worked with an attorney who has helped some of my clients out of this jamb with a short sale agreement. Nonetheless, foreclosure should be the least desired solution as the consequences to your credit live for a long time, affecting your future ability to finance anything.
A short sale is an eventuality for some properties. When what the market will yield for a property is not sufficient to payoff the amount due at a closing, a short sale may be the solution. The bank may agree to take less than is owed in order to avoid foreclosure proceedings. In my experience, the outcome is usually much more positive for all parties.
In any event, before you let the property just slip away, you should consult with an attorney who specializes in the process and can help you navigate your way to the best outcome.