I would get a good attorney to negotiate the short sale. You'll have stronger chance to walk away with zero deficiency (although I would caution the tax consequences) which I'm sure were all explained to you by whomever told you to do the short sale.
When I purchase a short sale, I always make sure the seller is provided with a free attorney that specifically negotiates the short sale for them. Lawyers can demand action from lenders, where the rest of us can only request a lender response.
Furthermore, if you own a home that does not have a valid mortgage (you haven't mortgaged YOUR home) then how can you be in default???
Call a GOOD lawyer, if what you are stating is true, it sounds to me as though you may own a house free and clear... I am not a lawyer, and I don't play one on tv, but makes sense, nes pas?
I know of a great Realtor in the Boston area. very intelligent, he will help you. Call or email me and let me know how it works out... I am really curious about this one.
Keller Williams Realty
Longmeadow, Agawam and Northampton, MA
Obviously if you have any mutual bank accounts, the bank or other creditors can usually go after that (via a judgment), so you could be in some trouble there.
Like the others said, I'd highly recommend spending an hour talking with a RE attorney in the area. Most will give you a free initial consultation to help steer you in the right direction. Either in person or via the phone. If you'd like a recommendation, just let me know.