What is the difference between a short sale and a foreclosure
Short Sale - The home is worth less than is owed to the bank and there has been some sort of hardship event in the borrowers life which caused them not to be able to pay the mortgage. If you are in this situation, consult with a local attorney. Most often, the attorney is paid by the lender at closing, so not being able to afford one is not a good excuse. While you are probably behind in your mortgage, a short sale is neither credit positive or negative. The bank may release the collateral, but unless it's negotiated for with the bank, they may come after the borrower with a 1099 or a suit for the balance. This is why you need an attorney with short sale expereience.
Foreclosure. The bank has taken possession of the property and the damage has been done to the borrower. A foreclosure is a 200 point hit on the credit score and stays for up to 7 years. The deed has been transfered to the lender and they now own the property.
I hope this clear things up. Let me know if you have any questions