Should we keep an upside down rental property?

The property is a definite keeper. The essed value is not the true market value. In fact I am willing to bet the true market value is between $155,000 to $175,000. Thus you are not that upside down on the property, especially if these upgrades will allow you to increase your rents. The lower essed value will make for lower tax payments in the future. I agree that paying off the past property taxes off should be your highest priority and the lender will happily accept a lump payment from you. Their payment plan with regard to the taxes was merely suggested to help you keep the property and not default on the loan. And once you get married your income might help you refinance the property to the lower rates available today.