I've received many calls asking if they should short sale or foreclose on their home. My advice is to attempt a short sale with a Realtor first, then foreclose if you are not successfull with the short sale. Financially speaking, most homes in California that were purchased between 2003 and 2006 are upside down in equity. From the economic indicators, it will take somewhere between 5-10 years to recoup the losses, at best. Most people aren't planning on staying in their homes that long. New tax laws are in favor of the homeowner regarding losses on primary residences. Your credit will take a hit, however your checkbook won't. Which one is most important to you? If you can afford the payments, I would recommned speaking to your CPA and attorney for best course of action.