I see.

If the lender is willing to agree to a short sale, and waive the balance of any balance you still owe, that would typically represent the best outcome if you default on the loan. Lenders will not normally consider this option unless the borrower has defaulted on the loan. The same is true for a deed in lieu of foreclosure.

If they do not agree to waive the balance owed, or settle it for something less that you owe that is feasible for you to pay, then there would typically be little incentive for you to go through a short sale, but could permit the lender to foreclose and sell the property at auction.

CO does not have anti-deficiency laws, so the lender could choose to pursue a judgment for the balance owed on the loan following the sale of the property at auction. Many lenders simply write off the balance, but if your lender does pursue a deficiency judgment, then you may wish to consider filing for bankruptcy protection, seeking to have the debt discharged altogether.

Here is a link that summarizes CO law on this issue:

http://www.ehow.com/info_8000963_foreclosure-deficiency-laws-colorado.html

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