If this is your principle residence and you would like to keep your home, you need to know there are options for you... 1) workout programs with your lenders 2) Deed in Lieu of foreclosure 3) Short Sale 4) the foreclosure. There are a lot of things to know about all of these options. You should discuss these options with your realtor and see which one may be the best for you.
You definitely need to contact a real estate attorney and a CPA to review all the possible tax consequences.
If you have assets (available cash in savings and or checking, 401k, stocks & bonds, equity in another property) then the lender can seek financial restitution.
If you have any more questions, please feel free to contact me at 858-565-7777.
Thanks, Denise Gleavey