First question, was your mortgage only to buy your house? I assume so from your answer, in which case that mortgage is a no-recourse loan. This is important for protecting you from the tax man because you cannot be taxed on debt forgiven in a non-recourse loan. If you are insolvent, meaning what you owe is more than what you have, then you also are not taxed on debt forgiveness. That all said, it sounds like your house is worth less than when you bought it, so you won't have capital gains. Even if you did though, the fact that you have lived in it for 3 years means you are exempt from $500,000 in capital gains on the house, which sounds like it has not occurred anyway. So if my above assumption about your situation are correct, the only real issues for you is how to recover from the disaster that is your house, and how to protect your credit.
As to the second concern, you should try either to modify the loan if you want to stay there, or attempt a short sale on the house. Believe me, you can short sale this house if the agent you get knows what he is doing. The bank will see the condition of the house when it gets it appraised (formally with an appraiser or informally with another realtor). If your agent is trying to sell the house for about that amount and succeeds, then you will have a paid less than outstanding balance as agreed on your credit. This will hurt your score more than 50 points but less a foreclosure. If you have not been late on your payments, then you won't have much damage. the issue though is that seldom will the lender give you the time of day let alone agree to a short sale until you are late on your payments. (How late you have to be to qualify for a short sale depends on who is the investor holding your loan. A HAFA certified realtor should have the experience and knowledge to guide you on that one. Follow his or her advice. It is the late payments that hurt your credit score. If you make your payments on time after being late enough to qualify for a short sale, then your credit score damage will be less. If you decide to live in the home payment free till it sells, then your credit score will be much more severely damaged.
As to the second issue, you may, and I mean may, not do, have legal recourse against the seller and his agent over the non-disclosure of permits and the presence of undisclosed molds. You need to give all the facts to a real estate attorney and let him analyze your situation. He or she can guide you as to whether you have recourse through the courts or through arbitration or no recourse at all. The devil is in the details and the paperwork from your purchase. So gather up all your paperwork including any notes of discussions with your agent, and everyone else.
It sounds like you did not have a home or termite inspection before you bought the home. Whether you did or note will be a big fact that will have influence on how your situation turns out.