I know the ramifications of cashing out a 401K early, can be costly. However, I don't know what other options I have at this point. Here is my scenario, please feel free to offer any helpful advice.

I just recently quit my job, and have roughly $27,000 in my 401K (after a loan is subtracted). My wife and I have a lot of debt (credit card, loans, etc). We will be relocating for my new job, and will need to sell our house. Stupidly, a little over a year ago, we took out a second mortgage, and now are upside-down on our mortgage... to the tune of about $25,000 - $30,000 (depending on what our house will sell for). In my new job, I will be bringing home an additional $2,000 per month. I will be renting an apartment until our house sells, to the tune of about $500 per month. So, it seems to me at first glance, that I need to cash out the 401K and pay off the remainder of my mortgage, and use the extra $2,000 a month to slowly pull ourselves out of debt and reinvest this money. Thoughts.. I would be happy to provide any more information if needed.

Roll over your 401K into your new job's plan and then take a loan against it to pay off the debts. Do whatever you can to borrow money short term to pay back the loan or tide yourself over till you can get the 401K loan.