If you could be facing a potential foreclosure, and you cannot get a loan modification, you best course of action is most likely going to be a short sale.  Although it is usually your best option you should be conscious of some of the potential effects. First your credit score will no doubt take a hit which would without a doubt happen anyway with a foreclosure or deed in lieu. Usually it will go down approx100-200 points per Fair Isaac and Co., the creator of the FICO score.  A short sale will only slightly reduced effect than a foreclosure would have. However a mortgage deficiency from a foreclosure will remain on your credit report for up to 7 years which is a lot longer than a short sale. This would hinder your score from improving faster. In addition you could owe additional income taxes. For instance, if your outstanding loan was $100,000 and your bank accepted a short-sale offer of $90,000, you might be liable for income tax on the forgiven $10,000. However, the Mortgage Forgiveness Debt Relief Act of 2007, which runs through 2012, generally allows taxpayers to exclude income from the discharge of debt on their residence in most circumstances. Consult a tax professional or an attorney to minimize or avoid this liability. In some states, your lender could still be able to come after you for the difference between the short sale accepted and the amount needed to pay off the mortgage. However, almost all real estate agents will make sure that mortgage forgiveness letter is provided to you that will spell out the details of your agreement which is typically total forgiveness. Sometimes this is unavoidable but individuals in the Nashville home market that  have had this happen found that after 3-4 months the lender usually rights off the debt as a loss. Though a short sale might has some disadvantages it typically is the best choice