Need some advice on difficult property

[RJ Walker]

Hello all! I'm new to BP, hoping to learn alot from the folks on here. Came across a potential client who is a friend of a friend. They're a couple whose property was damaged in the CA rains last month from a landslide. Their home is underwater (bought for 500k+ in '05, recent comps price it at 141k-200k).

Here are additional details:
-Current on payments, next payment due early next month, cannot make February payment because of engineering fee and temporary housing costs (family is staying at a hotel)
-Both spouses have excellent credit, high 700’s to 800
-Lender is BoA, outstanding balance on loan is 315k on fixed loan with 10 years left
-House is red tagged by city, city requires engineer to do soil samples and analyze hillside risk post-landslide in order release the red tag status
-Filed a natural disaster forbearance to suspend the payment
-Filed claim request secondary to homeowners insurance denying the claim
-Preliminary report by geotechnical engineer estimates 80k-200k to repair and install proper drainage to hillside adjacent to house
-Property repairs estimated to be around 10k
-Property damage:
o Carpet
o A couple windows
o Dry Wall
o Mold—water pooling from the back door, no proper dry out has been done (probably much more additional work/costs on top of original homeowner 10k estimate)

They're thinking about filing for bankruptcy and foreclosing on the home. I would think a short sale would be possible, but with all the other issues with the city I'm not sure if this is possible. What would you recommend?