Need Advice...about to miss my first payment

[Mike]

OK, here is the deal. We purchased our home in June 2005 for $674,500. We have put about $135K into it since then, using a combination of our cash and an equity line. When we bought the house we put 10% down and did an 80/10 loan. A few months later, we ended up refinancing the first, including combining the second into a new loan for $620K in Nov 2005. This was based on an $755K appraisal. We also opened a HELOC in Feb 2006 for $149,500. This was based on a new appraisal that came in at $855K. At this point, we had done most of the renovations, so the appraisal definitely seemed in line for us. For reasons I won't go into, we have been running a deficit for the past year. We have therefore been using savings as well as a bit from the HELOC to make up that deficit. Then, this past January, I was laid off from my job. Because I was only there for about 7 months prior to the restructuring, I didn't get any kind of severance. I have been looking for work ever since. We had decided, even prior to the layoff, to put our house on the market so that we could stop some of the cash flow issues. Losing my job just added fuel to the fire. Thanks to a generous tax refund, we have been able to survive for the past three months without any income. Well, that has just run out. And, we haven't gotten a single offer on our house, at 875, 849, or 829. There's just so much competition right now that we're having a hard time with our fully renovated home. At this point, the only thing I can think of is to end up being late on my May payment. Our scores have been in the 760+ for years, and I know this will hurt, but I just don't have the cash to put in. But here is my question to the group. We have two loans. The first is an 80% Interest Only Jumbo at $620K. Our HELOC is at $149,500, and is fully drawn at this point. The lowest we can take for the house now and just walk away would be $820K in order to cover real estate commissions. But we dropped the price to $820K last week and haven't gotten a single call. So my question is, I feel pretty confident that the house will sell quicker if we get into the mid-700s on a price. So, let's just say that the price is $750K. After commissions of 6%, that would net $705K. So, the first lien would get paid off, but the second lien would have to write off the difference, or about $65K. Would it make sense to call the HELOC holder (which is Chase) and offer this scenario to them? The problem, thus far, has been that my first lender (CitiMortgage) won't even talk to me until I am late. However, if there is a way for me to just have an issue with the 2nd mortgage and not the first, I would think that it would be less adverse on my credit score (one line instead of two credit lines). Because if Chase would agree to some portion of a writeoff, but not the full amount (in fact, under this scenario they're likely to get more than half), it would be better for them than if it went to full foreclosure or to bankruptcy. Or so I think. But I also know that I don't think like a banker. Any advice is appreciated!