It's confusing sometimes.

For distressed properties, a short sale is one in which the proceeds of a sale are less than the underlying debt and selling costs. What can these costs be?

1. Property taxes

2. The 1st mortgage

3. The 2nd mortgage or HELOC (home equity line of credit)

4. Any costs a court may have levied against the owner (judgments for unpaid bills, unpaid child support, etc., if any), as well as other junior liens such as HOA assessments

5. Trustee and attorney fees

6. Real estate agent commission and other closing costs.

It's generally assumed that a short sale has less of an impact on a borrower's credit than a foreclosure does.  A spokesman for Fair Isaac (of the famous FICO) says that's not so. As a proactical matter, though, the mortgage servicers often mark a mortgage as "paid in full" in a short sale, even though it's really not. Some lenders/servicers report otherwise.

If you suffer a sort sale, you can buy a home with ah FHA mortgage in two years. With a foreclosure, it's five years. Fannie Mae and Freddie Mac? Tough to say. Remember, there's a little box on the application where you have to check Yes or No to the question, "Have you ever had a foreclosure?"

Then, there're the deficiency judgment issues, which I've addressed earlier and will likely do so again.