I don't fully understand your question. It seems that you are unable to make payments under your forbearance agreement. If that is the case, you should see a lawyer who specializes in foreclosure defense and loan modification. You may also want to consult with a bankruptcy lawyer. A short sale will hurt your credit, but you will be able to recover.
A short sale could be a potential option but it is impossible to answer your question without knowing the specifics of your situation. You should consult with lending/foreclosure attorney as soon as possible to discuss your options (especially if you are in danger of breaching the Forbearance Agreement). If you would like to discuss the matter in detail I would be happy to give you a free consultation. Either way, good luck!
Anthony J. Zeoli
Attorney At Law
Hecht & Seidman, LLC
DISCLAIMER. The above post is provided solely for general informational purposes. Any information in the above post is NOT intended to be specific legal advice and should NOT be relied upon as such. NO attorney-client relationship is formed on the basis of the above posting and I strongly urge you to seek the advice of competent legal counsel before taking any action related to your inquiry.
If your in a forbearance agreement already, then your credit is already damaged from the missed payments you had prior to signing the forbearance. The fact your property is underwater doesn't affect your credit. A short sale will relieve you of the property if approved by the bank. But that will also negatively affect your credit. It will take several years of payments on the forbearance to restore your credit, and if in foreclosure it could take up to 7 years to repair your credit.
A question and concern we would have is if a foreclosure was filed against you, and if it was filed did the bank dismiss the foreclosure after you signed the forbearance. If not you should quickly hire a lawyer to dismiss the action against you before you do anything else. Until the case gets dismissed with prejudice, whatever you do, don't miss a payment.
Options? You need to decide what your goal is and whether your financial situation can support it. You need to sit with an attorney; without additional information including a review of the forebearance agreement, nobody here can give you clear reliable answers. For example, a few options are based on "means testing" (this relates primarily to bankruptcy options) meaning a complete picture of your finances. However, as to a short sale, it really depends on the lender's willingness to accept less than 100% of the amount owed in order to release the mortgage, and the forebearance agreement may impact the lender's interest in doing so. As to hurting your credit, it again depends on several factors including whether you defaulted on the loan prior to the agreement and what credit information has been reported to the credit agencies. Again, sit down with an attorney to fully explore you options.