Should I refinance when I intend to sell, then buy a new home in the next 1 to 3 years?
There are so many lenders out there that will offer no closing cost refinances. You have to be careful and make sure it is a true no cost refinance. That means if it is no cost you start saving money on your first payment. The rate you receive will not be the going rate but it will be better than what you have now....

Rising foreclosure rates affecting my equity?
There is a program in place that allows you to refinance up to 105% of the homes value. If you were not paying PMI, you will not have to pay PMI on the new loan. The programs differ from Fannie Mae and Freddie Mac. They do require that you have good credit scores. Yes, foreclosures are hurting your homes value.

can i refi a second home i purchased 7 months ago?
Yes. Josh is correct regarding cashout though.