A short sale is intended for a homeowner who is facing a financial hardship, and is struggling to make their mortgage payments. In addition the homeowner must be upside down. In other words, the mortgage is more than the house is worth. A short sale candidate must need both the financial hardship and be in an upside down situation.
When considering a foreclosure vs. short sale, a short sale will always be a better situation for both the homeowner and lender/bank. It minimizes the loss for lenders and minimizes the negative impact to the homeowner.