Newbie here, need a little help :)

[Joel Fraser]

First off, I have to say this site is amazing! :D In as much of a nutshell as I can here is my story, I really only have one question, but I figure details help. -We purchased our house Feb 2006 with a 30 year fixed. The selling price was $295K. We had equity from our last home, so we put down $65,000 making our loan $230K. -August 2006 we found out I was pregnant and expecting our first child. We refinanced in September 2006 into a 2/28 ARM and took out around $40K. After fees and what not it ended up being almost $50K, therefore our loan amount went up to $280,500. At the time we refinanced our house was appraised at $336K so we figured we were still fine. Needless, to say, we weren't. A house on our street sold at auction and brought down the value and it's now worth about $254K. -We currently owe $279,500 (made a couple little principle payments). -We just received our letter from ACS saying our interest rate is going from 6.19% up to 9+% making our mortgage payment $500 more per month as of Nov 1st. I am 8 months pregnant right now and $500 is not something we have currently nor will be have by Nov 1st, and it's set to go up every 6 months. -We spoke with ACS the day we got the letter and all they could offer was a loan mod. They said the rate could range from 6.19% up to 12.19%. We cannot afford more than 7%. My husband and I talked and have basically come to the conclusion that it's not worth it for us to stay in the house and pay on something we don't want to be in for more than 3 more years and we don't want to pay when it is not worth it, nor will it be for quite some time. We are not behind on any payments for anything and our credit scores are 785+. I looked into foreclosures and since we are in AZ, they have anti-deficiency laws, allowing us to walk away and the lender cannot come after us for the difference once they sell the house. We do not have a HELOC or a 2nd and the money taken out was to pay off one car ($17.5K, I'm a stay at home mom) and the rest was put back into the house to finish up any improvement before the baby was born (we actually do have receipts for just about everything). My question is: Does our mortgage qualify under the anti-deficiency laws? I've only found one case Bank One vc. Beauvai's regarding a refi and it qualified. Again, thank you for any help!!