Should we foreclose on our home?

My wife and her ex bought a condo in 2007 – something she regrets to this day (she wanted something small in the $ 80,000 range; he wanted the condo for $ 120,000). Right now with our combined incomes and current debt we are just making ends meet – but that will change when my student loans start coming due. We are not prepared for a car breaking down or emergency repairs to appliences or anything like that.

We currently owe about $ 114k on the property but are upside down after finding out recently that some appraisers are placing a $ 103k value on it. Here where the walking away comes into play…

My mother-in-law wants us to move into their upstairs (their house is very spacious) rent free while I help my father in law build out their basement into a large living area (helping him and various other chores will be our “rent”). After this area is complete they plan on retiring to Florida during the winter and returning during the summer. During that half year they will stay in the newly built area and we will get everything above it all to ourselves. On top of that she wants us to consider the house “ours”. Their mortgage is paid off in 10 years. they will pay it for 5 years and the remaining five years will be split between us. In the first five rent free years we will be in a position to either put a significant dent in our debt or pay it off completely – likely the latter. On top of that we will have a large home in a wonderful neighorhood with only real estate taxes and utilities to pay.

In this situation – where we feel it would be near impossible to sell our home – is considering a foreclosure feasible. Her credit will be in the tank, but the main concern in something like that is being able to purchase a new home – which we will not have to do. And my credit will remain in good condition because my name is not associated with the home.
In response to the answers below:
1. Someone said foreclosure will ruin our credit leaving us without the ability to purchase a home. This is moot because we are going to take over my mother in laws house when they move to FL.
2. If we don’t like the experience we can get an apartment. That is part of the reason I am thrilled that my credit stays in tact. As a family we won’t be in screwed. – and your credit is only affected by your spouse if you apply jointly. We have never done this.
3. We are strongly considering a short sell and renting it out – I just wanted to guage what people thought of a foreclosure – especially with our situation of walking into a home that is paid off.

Isn’t a short sell very difficult to get set-up with the spike in the # of people doing this, the possability the lender doesn’t agree to do it, and/or my wife and her ex not qualifying?

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