What is the best way to handle foreclosure, short sale or deed in lieu of foreclosure?

The two prior answers are correct, but I wanted to give a few definitions to make sure you understand the difference between the two options.

A short sale is where the owner lists the property for sale and the lender agrees to accept a lower amount in full satisfaction of the note. For instance, if you owed $100,000, but could only get an offer for $80,000, the bank would agree to accept the $80,000 as full satisfaction for the note. You would have to make sure that the lender agrees to waive any deficiency on the short sale.

A deed-in-lieu is when the lender agrees to accept the deed to the house rather than pursue foreclosure against you. You essentially turn the deed over to the lender and they call it even.

In both cases there are potential tax consequences that you should talk about with a CPA/accountant. Any forgiveness of debt is considered income and is taxable. However, there are some current (though temporary) tax laws that allow a person to avoid taxation on these particular agreements.

If the lender will agree to waive deficiency judgment and to accept a deed iin liue of foreclosure, that would be a good way to go, since you don't have to try to sell the house. A short sale requires a buyer who has the funding to buy your property, and a contract of sale. These days in Florida that is not necessarily possible.