Is there any way around this other than foreclosure?

You don't have to pay them the difference. They can sue you for the difference, and then you can deal with it in that lawsuit.

Assuming the mortgage was listed in the bankruptcy and you did not reaffirm the debt then you should not be liable for the debt.

Well, there are a few misunderstandings here. The fact that your payments are not being reported to credit bureaus does not mean that try are not being received and credited. Technically the loan was discharged, and many lenders take the view that there are no required payments to report. The payments you make are "voluntary". If the current lender will not refinance then you could always try to find a new lender there is no requirement that you stay with your current lender. If what you really are talking about is a loan modification, you may still be able to get one if you are persistent in finding the right people and if you are actually eligible for one. As for purchasing a new home, you might want to try to sell the property rather than let it foreclose. Foreclosures make it very difficult to find financing without a significant waiting period. If the lender will accept a deed in lieu that would be great, but there is no way to force them to do that. If they say you must list the home for 90 days, then speak to a realtor ASAP. If no offers come in for full price you might try a short sale. Not great, but still better than a foreclosure, and a foreclosure is not likely to be a quick and speedy thing.

A deed in lieu is asking the mortgage company to do a favor for you so they are entitled to ask for whatever they wish in exchange for this favor. I suspect you might do better with a short sale instead.

You should not rely on my advice, it's only an opinion and if I had a chance to look into everything you've said my answer could change. Always get a lawyer to help is my motto because in hindsight, they are cheap! Any personal obligation you have on the property is wiped away, so you do not have to pay for any deficiency. Note, HOA fees are still owed by you until you have left the property AND title has changed. We have a company set up that we deed properties to but assuming you want something quick and cheap maybe you can find someone with bad credit who will gladly accept the property from you? Then deed it to them. You don't have any personal obligations on the house that's why you don't care about the benefits of a deed in lieu.

You need to be careful. At this point you are not liable for any deficiency once sold. You might need the help of a consumer law attorney, because the mortgagee's only recourse is against the property, and it appears they are affecting you personally that is, their reporting status is preventing you from purchasing another property.