Sorry to hear of your situation. However, as you state in your question, there are other homes in your area in foreclosure. So the lenders know that also. They don't want another foreclosure, which could work to your benefit.
You should read my five part blog on the short sale foreclosure process.
Contact your lender and explain your hardship. Hopefully they will be willing to re-structure your loan.
Contact me or post for more help.
Time os of the essence. Contact your lender tomorrow, and a Realtor to help you out just in case you need to sell.