What you owe and what you think you have "invested" is irrelevant.
You need to price the house based on comps.

Some banks are not doing deed in lieu, as they have too many houses on their books now. You need to ask you bank about their policy.

We don't "think" on the amount we have invested. We Know. Since we paid cash for the 45 acres and paid cash to some of the contractors. But that is not even as issue. It is currently priced almost $100,000 less than the comps in the area. And of course what we owe is relevant, since if we sell it for less than we owe, it becomes a short sale.

Have you tried marketing targeted towards horse owners? There have been some threads on this board about different routes to try to find that market. Search for loveinthehouse's threads, they may have some helpful tips.

Is there no chance to move back into the house?

What is your real estate agent telling you?

We have a bank owned house across the street. It has been vacant for 5 years. Not even for sale. They just sold it to another bank. Still not for sale.

Only your lender can answer the questions you have.

We don't want to move back as it is 800 miles from where we are currently living/working. Our realtor has tried marketing to horse people, but nothing is selling in our area. We are priced lower than most comps. We have called our bank and they are not very willing to discuss options since we are current on payments. We have sent a certified letter to them and have an appointment with our attorney next week. Our realtor is suggesting a short sale. She said that seems to generate more interest in properties.

Price it ridiculously low and get it under contract ASAP. THEN, forward it to the bank. Most will not start the process until the home is under contract. Do not fall for the advice to be late on a few payments first. This does nothing but screws up your credit. You have a legitimate hardship. Get that documented and send that to them along with the contract. Google examples of Hardship Letters.
Remember, who cares how little you get for the home. It is not you who is going to be held liable for the shortfall, it is the lender. Let them make the final decision if they want to accept it.

What about renting out the house?

What about a land contract? Or even an auction?

This next suggestion might sound unusual, but many foreigners have been buying property in the U.S. as an investment. Horse owners as well.

Try posting an ad in Craigslist overseas. The UAE is one of the richest countries in the world. They might like a property where they can have horses.

Links that might be useful:

http://dubai.craigslist.org/

http://urbanpeek.com/2012/03/09/the-worlds-top-10-richest-countries-in-2012/

"Remember, who cares how little you get for the home. It is not you who is going to be held liable for the shortfall, it is the lender. Let them make the final decision if they want to accept it. "

This is very dangerous advice. In many "recourse" states, and in many cases where the house is not a primary residence, the borrower is in fact liable for the shortfall.

If borrower is on the verge of bankruptcy, the issue may be moot, and some lenders do not always pursue the liability, but it would be naive to assume that one can just *not* pay this type of debt in all situations.

OP should consider consulting a lawyer.

I had same thought as Invisible Hand -- in my state (MA), the owner would be personally liable for any shortfall.

The folks in Washington DC already extended the Mortgage Forgiveness Relief Act once in 2012 to December 2013. For this reason alone, it's in your best interests to try to move quickly. Unfortunately, I fear you will never make it by year's end. But fortunately, the amount of forgiveness will be minor (and probably offset by medical expenses).

The way it would work is say you got 280K for your home, but your loan balance is 300K. You would get a 1099C for 20K from your lender and you would have to pay taxes on that money. The Forgiveness Act made the 20K non-taxable. As of January 1, 2014 (barring another extension), that practice will return to many states, if not most of the country.

what ncreguy said.

I am so sorry your husband has cancer;
take care of him & take care of yourself.

I wish both of you the best.

I agree with the advice to find out the terms of your contract and state laws before you do anything. You may a costly mistake, but with better planning it may out for you.