Your options are as you stated. In a short sale you will need to work with your lender. There are some imprtant steps that your lender will require you to take. You may or may not be liable for the difference, it all depends on what your lender will agree to. You will most likely carry a tax liability for the difference in what you owe verses what the lender forgives. You will need to deal with the IRS in this case. Yes this event will have a negative impact on your credit. Short sales are not “short” in terms of time. They generally take longer then regular transactions so if you are going to do it, get moving on it. Your lender may not agree on the 215k making it moot but if you have an appraisal that states 215k then it will help your argument with the lender.
You can default on the agreement and become a landlord. You stated that you will have a shortfall of 650 a month. Can you afford that?
Sounds like a choice of bad or worse. I think most people here see the inland empire as one of the areas that will get hit harder as the decline continues over the next few years.
