I just got a real estate legal update from a local attorney here in Fair Oaks.  Seems the debt forgiveness act isn't being extended here for the state taxes.  You'll be fine with the federal taxes being a short sale or foreclosure could effect your taxes come April 15th.
The best thing to do is to contact a CPA to see how the situation will effect you come tax time.  If you wish to pursue a short sale, that's where I can help you.  I'm CDPE certified; move over, I have experience and have done my fair share of short sales since 2008.  Contact me with questions: Chad Phillips Re/Max Gold Roseville CA 916-390-1476