I am asked this all the time as well, and am currently negotiating 3 short sales where the seller is current on their mortgage payments. Many thanks to Mark Geis for this information.
I'm often asked by sellers the same question time and time again:
"Don't I have to be late on payments before I can qualify for a short-sale"?
The answer, in a nutshell, is NO. Banks will negotiate a short-sale if there is a great risk of "Imminent Default."
HUD defines "Imminent Default" as:
1. Is current or less than 30 days delinquent on their loan.
2. Has a documentable hardship, which can include a reduction in income or a loss of employment OR a change in household situation, such as death in the family, divorce, serious illness or other issues.
Obviously, the greatest benefit to not missing any mortgage payments and proceeding with a Short Sale is that it can reduce the amount of time for anyone to buy another home with a mortgage in the future. Unfortunately, in this marketplace, it's not always possible.