My wife has a 180k mortgage (1st is 142k and HELOC is 37k)

My wife has a 180k mortgage (1st is 142k and HELOC is 37k) on a townhome worth, at best, 125k (She is the only one on title).Trying to do the right thing we moved back in with the in-laws to try and save money and rent the place out - still having to pay out $400 monthly to cover mortgage/HOA. The recent storms in Colorado caused our concrete basement floor to heave and burst allowing a foot of water to flood our basement. There is a large crack in the cement with one side about 5 inches higher than the other. We haven't received an official estimate but we've been told that the damage is extensive. We were told that we will need to remove all the existing flooring (600sf) and re-pour a new concrete base. The bathroom, sauna, bar and shelving will all have to come out then be replaced (bathroom door will not open anymore due to damage). Our insurance company notified us that they will be issuing a denial letter. We can't imagine this costing any less than 12-15k which we don't have in savings. Our realtor at first joked that we should go out and buy a house or a car and try to short sale the property. But now that we've had time to catch our breath, we believe that is what we should do. The money for our down payment will be taken from my 401k - 16k at present. But now the realtor believes that if we have the money to buy a house we should repair our townhome and then rent it out again and continue living with the in-laws. What should we do? Does it make sense to literally throw 15k into a home to be underwater an additional 50k plus? Or should we buy a new home under my name only and continue with the short sale? Any advice would be greatly appreciated.