Short Sale: Pros & Cons

AS we get farther and farther into the foreclosure crisis, more and more is being heard about Short Sales as an alternative. Yet you find yourself asking just what is a short sale, and is it better for me than being foreclosed upon? Well, let's look at the details and then you can better decide what benefits you most (or hurts you the least).
In a foreclosure, the lender takes away your home--short and sweet (well, maybe we can forget the sweet here as there's nothing sweet about losing your home). You probably won't qualify credit wise for another mortgage for at least seven years, assuming your other credit is kept OK. You potentially could end up owing income tax on the lost home as well, if the foreclosure price paid at the public auction is higher than what you paid originally, but, given recent years' values, that's not very likely.
A short sale, however, is different, although it's still not a bowl of cherries. In a short, you sell your home to a third party buyer, subject to bank approval, at an amount that is less than the bank is owed on the mortgage--in other words, short of what is owed. Do you get any cash from it? No! You just avoid foreclosure.
However, there are some definite negatives.First, contrary to some claims, your credit is still going to be trashed if you do a short. It just won't likely be trashed quite as badly. For instance,if the rest of your credit is good and stays that way, you very well may qualify for a mortgage to buy another home in 3 years rather than the post-foreclosure seven.
As far as possible tax liability is concerned, traditional tax law makes ANY forgiven debts taxable income at regular tax rates in the year that the creditor (your lender) says, "Oh, what the hell--forget it; let's let bygones be bygones." However, due to the severity of the foreclosure/mortgage crisis of the past few years, a law was passed by the Feds that exempts some (NOT all) borrowers who do shorts from being liable for income taxes on the forgiven amount of the mortgage. So, how do you know if you're exempt? Call your accountant and/or your attorney. This advice also goes for just doing a short--protect yourself on the obligations of your proposed short and make certain the docs for the transaction aren't any more onerous to you than is absolutely necessary!
Good luck!