WAIT! New legislation.... new options available. Who is your lender? What is your interest rate? Do you have one loan or 2? How far upside down are you?
Without knowing these answers, I can't give you personal advise. But, if you like your home, and want to keep it, let me throw 2 ideas at you....
1. An FHA Streamline refi is available if you've been making your payments on time. That's pretty much all they look at to determine your eligibility - not debt to income ratios, not savings, not credit, not even if you are WAY upside down in value. The only catch is that it (a) must make sense (most people can lower their interest rate 1-2% which can be a significant savings each month); (b) you can't finance more than you originally financed. So, if you originally financed $105K and the current payoff is $103K, then you may need to pay some costs out of pocket for closing costs. However, if you originally financed $105K, and your current payoff is $95K (even if the value of the home is $50K), this should work well for you.
2. Through new legislation, banks now have new incentives to do refis or loan modifications. On the new HAS (Housing Affordability and Stimulous) refi's the loan can't be more than 105% of the current value of the home. That makes this option tricky for many people - BUT, here's who it does work for... anyone who did an 80/20 loan package with an 80% first mortgage and a 20%(or less) second mortgage... because these new HAS refis will subordinate the 2nd. In plain terms it means that if you have 2 loans 1st - $80K, 2nd, $20K and the value of the home is $75K... you can now refinance that $80K loan... the $20K loan will be your primary (and that will make your lender very, very happy), and then you have the new refi as your "second" for $80K... the value here is that ideally, your interest rate would be dropping enough that you will be saving a lot on you monthly payments.
I don't know much about the HAS loan mod process, but the inside scoop I am hearing is it is still very case by case and we're not sure how it will all unfold. But, hopefully one of these two refi options will work for you.
If not, before you throw in the towel, please contact the nonprofit at http://www.nw.org
for help. They have HUD approved counselors to help you and there is no charge. Whatever you do, do not pay for someone to "negotiate" with your bank for you.
If all else fails, do a short sale before you allow a foreclosure. The benefits are HUGE comparatively speaking. But, please try these other ideas first.
I am sorry I am not in your market, but if I can refer you to someone, don't hesitate to call... email@example.com