Legal Question in Tax Law in Minnesota

I bought a townhome in Apple Valley, MN in 2001. The value has been steadily dropping every year since. In summer of 2012, we finally moved out to a new single family home as our new residence. We still own the townhome and are renting it out. Our renter has made all payments on time and is a good tenant.

Having said all that, the value of the home continues to drop like a stone. We currently owe approximately $40K more than it's worth. Just in the past 2 weeks, another townhome forclosed on our street and one burned down in the next lane over. it's only getting worse. At this point, we're desparate to get rid of it.

Currently, the renter gives us $25.00 less than our mortgage per month. But add to that the property taxes, association dues, and home warranty/service calls, and we're losing about $300.00 per month for a house we don't even occupy anymore.

I've done some digging and it seems a seller who short sells a home is liable for the difference between what is paid and what is still owed. In this case, it's likely a $40K gap. Can anyone tell me what would we owe if we short sold this property? Are we eligible for any debt forgiveness? I've heard there was a program, but only if you lived in the property currently. What if it's a place we're renting out currently? Any info is much appreciated.

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