Unfortunately, unless you are late on your payments, from what I understand about mortagages and short sales, the lender will not let you do a short sale. You have to have missed one or more payments and be able to prove financial hardship. Just because you are upside down on the mortage is not enough reason to qualify for a short sale.
I agree that in this case, the best option would be either to rent it out (with a steep deposit and first and last month's rent) or find someone that wants a Contract for Deed. There are buyers out there that would like a Contract for Deed that can't qualify for a mortgage now because of the new strict credit guidelines or have a poor credit history. I just answered a question from someone in the Plymouth area that is wanting to buy but has bad credit right now. If someone defaults on a CD, you can easily call the loan due and take back the house, in addition to keeping all of the payments that have already been made.
I am feeling your anquish here. If a foreclosure will effect your husband's background check....will a short sale or a deed in lieu of foreclosure? Both of these effect your credit scores so they may also effect his annual check.
If it is feasable to rent./lease it out and not have to much out of pocket that may be the best thing for now. It would help keeping your credit in tact. There is always the option to bring money to the table to close but it sounds as if you are getting tight on cash.
It is a very complex question and can not be answered and should not be answered in a community forum. We have 50 sellers that we are doing short sales for right now and many of them have different situation and we handle each one different. Each lender is different. Some lenders will work better with you if you are paying, some will not. Some lenders will not work with you if you have missed payments. Most of my clients in short sales do not have the money to pay a lawyer so we try and help them the best we can. The best thing you can do is have someone that knows the process working with you and your lender. Ask for a list of successful short sales from the agent before you let them in your door. If they can not provide it, find someone else. Ask them for a list of lenders they have done shortsales with and see if any of them are your lender before you tell them who your lender is.