I process foreclosures all day long, and a short sale is not a bad option, if your lender is willing to do that, but you have to be approved for it. Each state has different laws, but it would definitely be worth checking into, so you don't get stuck with a foreclosure. Also, whoever you pay the $12,000 for on the AC/Heating unit will be named as a defendant if you house goes to foreclosure, so they could have right to your property if they wanted to and you didn't pay that balance. You could also try selling the house on your own to make enough to pay that off as well. Another option would be to speak to a bankruptcy attorney.