In the short sale the lender absorbs all the seller's costs, including realty commissions, and approves a sale based on the current market price with a short sale. Tax consequences may apply, but if you decide to throw the towel in, it's a smarter way to solve the problem since the short sale will reflect negatively on your credit report for approximately 3 years. This might prevent a home purchase until then, depending on your credit history. On the other hand an outright foreclosure will stay on your credit for 7 years.
Right now, the banks want to keep everyone in their home, because if all of these banks instituted foreclosures now, the real estate market would plummet. As a result, lower values would ultimately cost the lenders even more in diminished refinances and new loans. Banks would be cast in a more negative light than what they are facing now, with congressional hearings, bad press, etc.
So if you're upset about your home being upside down between $50,000 and $150,000 in value, you need to decide which path to take, whether to throw good money after bad and ride it out, or short sale, or just walk away and take your loss now and move on.
Property values are not coming back any time soon. If you don't plan on selling your home within the next three to five years, and you can make the monthly payments, stay and don't worry about the value. You'll sleep better and your neighborhood will benefit from one less distressed property on the market.
For more information on a short sale see Chapter 14 in the Tower Report, Stop Foreclosure and Keep your Home, or Just Walk Away. www.stopforeclosureorwalkaway.com