You are asking a lot of questions ... but that's good. You will get answers to some but not all of your questions on this site because many of us will not put certain things in writing. I'll address some of your questions - hopefully I'm clear on what I understand from your post....
1) You've already done a Loan Mod - Obviously you were having difficulty and the lender worked with you to reduce your payment to something you could now afford. It sounds like they reduced your rate by 2%, likely made no reduction to your UPB (unpaid principal balance), and tacked on a 5% penalty at the end. So now you actually owe more than you did before. Assuming you stay in the house another 10 years, will the value increase to more than what you currently owe? - Very likely NOT, so you will be short unless you stay there until you pay the property off in 20 or 30 years which is fine for people who are never going to move.
2) You said your FICO dropped 200 points. This is a little surprising IF you were truly current on everything else. With more than 40 short sales completed successfully, I contact sellers about 6 months after closing just to check-in on how things are going. The highest FICO drop I've heard was 125 points and they were also late on several other credit cards. The majority of the others dropped about 100 points for the short sale, if they were ok otherwise.
3) I assumed you went directly to the bank for the short sale and not to a Loan Mod Company. If the bank worked with you based on what you told them you could afford, you debts, your income, etc and they agreed to it, why would they now agree to short sale the property? If your lenders are BoA/C-Wide, Chase/WaMu, or HSBC, they will not work with you on a short sale after having done a Loan Mod. In fact, they are the worst for short sales - most fail due to the 10+ month wait time to get it approved. I also assume you either a) don;t have a 2nd mortgage; b) have a 2nd mortgage with the same lender (but maybe not the same investor) or c) you have a 2nd with another lender - which is the most challenging in short sales - (getting the 2nd to cooperate).
4) If your property is ONLY upside down by $100K consider yourself lucky (is this 10%, or 50% of the value?). Most of the Short Sales I manage are $200K - $750K upside down - and I get them done!
5) As for the issues with your HOA you need to address those separartely from your financial issues. Yes, these issues may have an effect on the value of the property, but you need to address them with the HOA. Read your CC&Rs, join the Board of Directors of your HOA, attend the meetings, make sure the issues are included in the meeting minutes and talk with a RE Attorney. Pt your requests to the HOA in writing to the Board of Directors. KEEP TO THE FACTS and leave the emotion out of it - sometimes that's hard to do, but this is "business". In 2010, one of the biggest issues we will face is HOA's going into bankruptcy. So many HOAs are struggling, don't have the funds to perform maintenance, and are experiencing high ratios of residents not paying their HOA fees. I just closed a unit in Laguna Niguel - it's a 100 unit development and 76 units are not paying their HOA - that's a challange for the HOA, and for sellers.
No one other than your attorney should give you advice on whether to continue paying your mortgage or not. You received a loan from a lender which you agreed to repay under the terms of the original loan and now the modified loan. If you do not repay according to those terms, you will be in default, and the bank / banks can sell it in foreclosure. If you only have one mortgage, there are other alternatives for you.
A short sale will impact your ability to re-purchase for about 2 years, a foreclosure will have an effect of 7 - 10 years.
If you want to dicuss further, let me know.
Best of luck,
Broker / REALTOR
Orange County, CA