In some cases you don't need to be late. You do however need to claim financial hardship. You can be late on other things and prove financial hardship. The banks DO understand that because most people try to continue paying their mortgage before credit card bills. Unless you are selling to relocate because of a job, a short sale is not out of the question. Keep trying and get the right agent on your side.
You are smart to be thinking about your credit. So many just bury their heads in the sand, but remember - you will have to pay for your actions at some point. My suggestion is a last "situation reccommendation" - lease out your house. Contact a property management company, if fact contact a few. See what your rent range would be and then move for the sake of your children. You will probably be leasing yourself, but when the market turns.....and it always does (I have been through 3 shifts in real estate), then sell it. PROTECT your credit if you can.
By using a property management company, you will take the emotions out of a crucial finanacial decision, plus they have far more resourses than you. TRY NOT TO LEASE TO AN ACQUAINTANCE - that is a recipe for heart break!
I can refer you a list of property management companies. You are not alone, but there is help.
Wish you Luck
First Weber Group
Certifed Distressed Property Expert
First it is going to depend on your bank as to the process and what they will and will not allow. Usually it is true most banks will not discuss a short sale until you are in default. It is most unfortunate. Of course either way your credit will be damaged. I will say that your credit will be affected more by a foreclosure then by a short sale. Some of this is going to be determined by what your plans are as to where you are going to live next. The first step if you decide to pursue a short sale is to contact an experienced short sale agent. You need someone that is experienced in these transactions since it is not an easy sale. They take time and patience for sure. If you like I can put you in touch with someone in my Short Sale network so that you can at least discuss your options. You will definitely need to figure out what you are going to want to do after you leave your present home.
Hope this helps,
Best of luck to you in protecting your financial situation throughout this ordeal, but mostly I wish you and your family all of the good fortune you need. Hang in there Tasha.
I would be more than happy to put together the information for you.