I cannot give you legal advice but I can tell you that, unfortunately, most loan modifications do not go through.
Kim had a good answer below. I would like to add that a short sale will hurt you for less time than a foreclosure will. If you do decide to short sale your home you need to hire a Realtor that has short sale experience and is a CDPE (Certified Distressed Property Expert.) It sounds like the clock is ticking so please don't delay at least speaking to a CDPE.
Wishing you the best,