Another added consideration is that the 2007 Mortgage Forgiveness Act is scheduled to expire by the end of 2012. So if you accept a loan modification now and realize a year from now that you were better off doing a short sale; you may be liable to the IRS for the full negative balance if you short sale or become foreclosed on after 2012. This is a huge motivator for many homeowners who are uncertain of their ability to hang on to their property in the years to come. Remember, you cannot include income taxes in a bankruptcy either, so take a really good look at your overall situation before you decide because you may not get a second chance relieve your negative debt.
I just placed a short sale on hold because the bank, Wells Fargo, recontacted my clients advising them they had a "new" loan modification program they thought the clients would qualify for. The clients had already been denied two previous loan modifications. After 2 weeks, as typical with many loan mod products, it was found that the loan mod Wells was offering was not at all helpful to the client. So, we're back on with the short sale. I put in every listing contract a clause that states that the client can place the listing on hold if they accept a loan modification. I do this for 2 reasons, 1) I want to assist the homeowner in keeping their home if there is any way to do so, and, 2) I know that most loan modifications are not appealing at all to the client and those that are, rarely go thru.
I suggest you set an appointment with the agent and their broker and go over the contract to see what can be done. Good luck.