u guys never prepared for "laid off", did you?
with $1700/mo, you could have bought another property nearby beofore lossing job for $170K which is half ur current house. you would now easily default 1st one.
anyway, it is kind of late. let's see what you can do.
meanwhile, I want you be strong. Sad and difficult time, indeed. We all feel your pain deeply. This winter is colder! However, life has to move on.... Hang in there!