New rules make short sales very attractive to the homeowner:

You still lose your house, but you have no tax liability on the forgiven debt (till 2012, and on your main home), and you can repurchase relatively soon.  A short sale (unless you live in one of those areas of the country that didn’t go down in value) will free you from immense amounts of debt.  Unfortunately, the lenders have not yet “come to the party” on the loan modifications they OUGHT to do, and STILL will not properly reduce principal so that you can keep your home, start making payments at the reduced rate, and get on with your life.  So the next best thing is the short sale. The Feds (through their HAFA program) now provide incentives to both to you and the lenders if they will allow short sales.