I was in Real Estate for a lot of years, if it was me - I think I'd go to the bank and show them the numbers and ask them why you shouldn't just walk away from this mortgage? I mean, they can't even short sell it with a known foundation problem and would take a huge loss. You are so far under water that it isn't recoverable. Since you want to stay there, it would be in their best interest to work with you.
Do you know any Real Estate attorneys?
I like the idea of a loan from your 401K. I certainly don't know what I would do.