If you are short selling there is no need to mediate. Make sure a lawyer negotiates the short sale to get you HAFA protections and incentives and explain all tax consequences
The lender's short sale department does not necessarily communicate with the foreclosure department. If you've been working with the lender's short sale department, and you have an offer submitted, you should contact the attorney for the lender who is going to represent the lender at the mediation and let him know that. If you do not know how to contact him, call the company that scheduled the mediation. If the attorney says that you need to appear at the mediation anyway, then you should attend.
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.
In my experience, mediation is most effective when the homeowner seeks and is qualified for a HAMP loan modification. If you apply for a HAMP loan modification, pay the three monthly trial payments, and have a mediation afterward, you can ask the bank to provide a permanent loan modification with a principal reduction.
My colleagues all provided good answers. However, keep in mind that there are no guarantees with a short sale and I have seen many of them fall apart at the most undesirable times. You should attend the mediation, as it gives you a chance to communicate with the foreclosing bank's legal department and you will have a contact to work with in the future if things go awry. My suggestion is always to be represented by competent legal counsel in a matter such as this, rather than to try and do it on your own.
This information is for education purposes only and is not to be relied upon as legal advice, legal opinion or as a complete answer/information to/for this discussion. You should always seek competent legal advice from a licensed attorney in your area for help with your specific legal question. No attorney - client relationship is created, intended or should be construed upon from this general discussion.