Short sale vs foreclosure

[cmitch]

You can ask for what is called a 'Deed in Lieu of Foreclosure' which is basically giving up all rights to the property to the bank in exchange for title of property to the bank. This would absolve you of any liability should the house short sell. You do not mention if you have other assets such as other property, retirement accounts, IRA's or Roths. This could technically come into play if the bank balks at a Deed in Lieu of Foreclosure because the bank isn't interested in losing money, which they would in your case. It's unlikely the bank would agree to this if your house is worth less than you owe.

These are the kinds of jams folks find themselves into when they buy a house with very little money down and coupled with declining market values.

It's really hard to tell you what would be the best in your case since you don't mention how much you're going to be upside down IF the house does sell.

One other thing to ponder is what kind of cars do you both drive? Are they relatively late models with enough equity to sell them to help limp along or to make up any difference that you might owe? Short of waiting on a foreclosure where you lose the control over what your house sells for, I don't know what else you could do not knowing specific details.

I pray all works out and this sounds like a bad situation to be in. I hope you can get it together and get back together because it sounds like a split is going to do you both much harm, financially and emotionally.