If you owe more than your house is worth and are having trouble keeping up with your payments, this is our first recommendation.
Very simply put, a Deed In Lieu of Foreclosure gives the property back to your lender, who forgives the debt, and you walk away mostly intact. You suffer far less damage to your credit and the lender suffers fewer losses than with either a short sale or a foreclosure.
If the circumstances allow it, this is door #1. Ask your lender about it, they should be very helpful in determining if this will work for you. After all, they’re plenty motivated to cut their losses, which are already substantial.