I have seen many people thinking that they didn't have a hardship, while they actually did.
This is a question for your CPA, who needs to understand your overall financial situation and your goal of ridding yourself from your investment property.
That's how luxury property short sales are done - it does not matter what income you have, if your expenses are bigger than the income...just to give you an example.
Other options are: having the buyer contribute to your "deficiency" amount, having "soft note" that you slowly repay to the lender after the short sale (if you are not able to obtain the waiver of deficiency), some people move into their rental properties to have the benefits of principal residence tax exemptions...Making this property your principal residence can open other options for you also (short refi, HARP).
You got to meet with your local CDPE (Certified Distressed Property Expert) realtor, a few of local attorneys (but not bk attorneys - as those might point you in the wrong direction), your CPA (if he is knowledgable about short sales and their tax consequences - because some aren't)...
Hope this helps,
Beachfront Realty, Inc.
Sorry to hear of your situation.
You have two great answers so far, I will try to fill in with a few comments.
In most markets areas values have declined over the past three years or so. We expect values to remain flat for the next three or four years, based on what we know right now.
From the lender's perspective this is what they would prefer you do:
1. Keep the home - make the payments with new tenants - Impact on your credit - positive
2. Keep the home, modify the loan to make it affordable, rent to tenants at a lower rate, Impact on your credit - positive
3. Try to sell the home as a short sale. Lender agrees to pay closing costs and absorb the loss, you bring no money to the closing table, however you'll need to prove hardship and also prove that you are basically broke by providing a financial statement including all assets and liabilities (in other words, be broke). They will go after other assets that you have (boats, jewelry, 401K, etc.)
Impact on your credit - 80-100 points or so. Don't plan on buying anything in the near future.
It is possible that they may agree to issue a promissory note for the negative balance which you agree to repay over ten years or so.
4. Let them foreclose - trashes your credit 150-250 points, you cannot buy anything for 5 years. Of course, you'll have a lot of company.
My suggestion is to have an expert evaluate your situation and provide you with your options, pros and cons. I would be happy to refer you to an expert in your area that can help you do it. Just contact me via my Trulia profile.
We had a situation like yours. We ended up keeping the home (18 years) and in the end made a lot of money. It was tough in the first five years, but the appreciation of the property and the tax consequences made it worth while. Talk with a CPA or financial planner as part of this process.