You DO need an attorney, and a response saying you are doing a short sale is NOT any sort of defense to foreclosure, in fact, it is the exact opposite.
I hear from people all the time who were in the process of doing a short sale, but while it was pending, the mortgage company foreclosed anyway. Furthermore, unless a short sale approval waives your deficiency judgment exposre (and most do NOT), a short sale is likley not in your best interest. I see realtor advertising all the time promising people that they can do a short sale and them "walk away". That is generally extremely misleading and dangerous. I wrote a Legal Guide entitled "Beware of Short Sales in Florida" http://www.avvo.com/legal-guides/ugc/beware-of-short-sales-in-florida that explains all the details.
Please note that the above is not intended as legal advice, it is for educational purposes only. No attorney-client relationship is created or is intended to be created hereby. You should contact a local attorney to discuss and to obtain legal advice.
Yes - you should hire an attorney to respond to the foreclosure complaint. Just because you are working on a short sale doesn't mean that the lender will not continue to prosecute its foreclosure action.
As was indicated by Ms. Golant in the prior answer, you should make sure that your short sale approval letter contains a waiver of deficiency. Insist on seeing a copy of the short sale approval letter and read it carefully to be sure you will not be responsible for the amount of the mortgage not satisfied in the short sale.
When you are in foreclosure, you can't just decide to short sell your home. Any short sale offers have to be approved by the foreclosing bank; your realtor should know this. The foreclosure case will go on, until the sale is approved by the bank, and the property is sold. So yes, you should respond to the foreclosure complaint within the required 20 days. You cannot respond with "I am doing short sale". You have to address all the allegations in the Complaint and should have an attorney to do it.
You have a better chance to have a deficiency waived if you apply to you bank for a short sale under HAFA (Home Affordable Foreclosure Alternatives) program.
Please note that the above is not intended as legal advice, it is for educational purposes only. No attorney-client relationship is created or is or is intended to be created by my answer. You should contact an attorney in your area to discuss your case.
It's called, "Dual Tracking": While a homeowner is trying to modify a home loan or do short sale, through the bank (through the loan servicer that you call on the phone) their lawyers are running your foreclosure case through the court behind your back. I'm writing in my best interest because admittedly I'm a foreclosure defense attorney in Miami, However that does not mean I'm wrong and I completley agree with Ms.Golant.
I just started a blog dedicated to forclosure defense (other blog had foreclosure AND criminal law) and I have to add something about this dual tracking and just generally that if someone sues a person and that person does not answer or respond or fight it--its just like they are admitting to it.
I believe people have to fight their foreclosure or as a last resort consider bankrutpcy. The good news, but crazy news is that often it is cheaper to pay an attorney than to pay the bank, but eventually something has to be done. The best option is if someone can modfiy their home loan while fighting their foreclosure. If the homeowner does not fight the foreclosure, the bank will never negotiate for a loan modification or short sale. Bankrutpcy is an option too, but I don't think it should be the first choice. Bankruptcy is depends on a person's goals and if they qualify for it. Just call some of us attorneys and talk on the phone or make appt., your are not obligated to hire anyone.