Real Estate Law
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You want to aviod a foreclosure proceeding at all costs as this will hurt your credit score. If you can't sell the house, can't refinance and can't keep the current note up, your best option is to ask the mortgage company to accept a deed in lieu of foreclosure. This gives title back to the mortgage company for the balance of the note and avoids a formal foreclosure. This should allow you to avoid a foreclosure on your credit report.
Feel free to ask any follow-ups.
There is nothing to do prior to requesting a deed in lieu of foreclosure. This should allow you to protect your other assets from the possibility of a deficiency judgment. It is not wise to get rid of or transfer your other property in the midst of the foreclosure - a court can allow all of these transactions to be reversed, not to mention that it makes you look less than honest to the court.
If you transfer the property, you have no say in what the bank or new owner does with it. However, you may be able to negotiate that if you give a deed that the tenant can occupy the property for the balance of the contract.