Under the new law that George Bush signed in Nov or Dec 2007....you can get out from under your house.
The President signed an act called...Mortgage Forgiveness Debt Relief Act, sparing homeowners the tax burden associated with canceled mortgage debt.
Prior to this action, forgiven mortgage debt due to foreclosure, short sale, or deed in lieu of foreclosure, was considered taxable income. The new law, however, temporarily waives these taxes for debts forgiven (as high as 35%) from the beginning of 2007 to the end of 2009. The bill also extends the tax deduction for mortgage insurance premiums through 2014.
Your options are: Short Sale, Deid in Liu, & Foreclosure. Your best route is a short sale. It will not effect your credit as horribly as a forclosure. You will need to talk to your mortgage company, see what options you have. They will let you know the step by step process.
You will also need to get a real estate agent and get it up on the market asap! You can't do a short sale w/ out it!
Went through a short sale in Nov and now going through the tax prep w/ my accountant to be releived of what the mortgage co wrote off....if you have any questions please feel free to email me.