So your real estate agent is trying to talk you into a short sale?  What about the potential for a deficiency judgment?  Foreclosure has restrictions on deficiency judgments unlike short-sales (although there are some).  Read the California Code of Civil Procedure:

580d.  No judgment shall be rendered for any deficiency upon a note secured by a deed of trust or mortgage upon real property or an estate for years therein hereafter executed in any case in which the real property or estate for years therein has been sold by the mortgagee or trustee under power of sale contained in the mortgage or deed of trust.

CALIFORNIA RULES:

PURCHASE MONEY RULE: In California, a lender who loaned you money to originally buy your home, and was your primary residence, can only foreclose, they can't obtain a deficiency judgment. This means if the foreclosure sale does not pay all “purchase money” loans, lenders cannot sue you for the unpaid balance. This includes second mortgages. If you refinanced, or paid down a purchase money Home Equity Line of Credit (HELOC) and drew down on it again however, this rule does not apply.

ONE ACTION RULE: A lender can only take one action against you in California in a non-judicial or judicial foreclosure. A non-judicial foreclosure is just like the purchase money rule in which a lender can only sell the property to pay the loan. If the sale does not pay the mortgage off completely, the foreclosing lender cannot get the unpaid balance from you. However; the lender can get the balance from you in a judicial foreclosure. California is generally considered a non-judicial state but both foreclosure processes are available. Judicial foreclosures are so uncertain and costly for lenders that they are very rare. What's important to know however; if a lender’s junior security interest is wiped out by a senior mortgage in foreclosure, the junior lender might be able to obtain a deficiency judgment for their unpaid balance because they have not had their one action against you. This is a common situation when you've used the second mortgage for home improvements or paying other bills.

CANCELLATION OF DEBT RULE: Both the IRS and California tax you for the amount of debt that is cancelled in any given tax year considering it income. Debt is cancelled only when a lender has given up on its right to collect the debt or they are barred by law from collecting the debt for some other reason, such as...

THE BANKRUPTCY & INSOLVENCY EXCEPTION. Both the IRS and California exclude cancelled debt from your income if the debt was cancelled in bankruptcy or you were insolvent but only to the amount of your insolvency. You are considered insolvent if your debts exceed your assets which can include IRA and pensions.  See: debt forgiveness - tax consequences