depending on the amount needed, he could get a home improvement loan or personal loan. Banks just dont want to give mortgages especialy if the person is self employed.
If there is alot of money owed, it might be the best option to sell the house, as you said the amount of the mortgage is less than the value, so they could pay off all loans and still come out with money. A neighbour of mind was in a similar situation, lost his job just as the house was being finished, he sold up, paid off all loans and bought a smaller house.