• Call the Lender
  • You want a supervisor's name, the name of the individual capable of making a decision.
• Submit Letter of Authorization
  • If you are working with a real estate agent, you may need to write a letter to the lender giving the lender permission to talk with that specific agent about your loan. The letter should include the following:
    • Property Address
    • Loan Reference Number
    • Your Name
    • The Date
    • Your Agent's Name & Contact Information
• Hardship Letter
  • Draft a letter explaining the unfortunate situation you find yourself in.  Let the lenders know the sad truth about your financial position.
• Estimated Net Sheet 
  • An estimate showing the sales price you expect to receive as well as closing costs, unpaid loan balances, outstanding payments due and late fees, including real estate commissions. Your real estate broker should be able to prepare this for you.  If the bottom line shows cash to the seller, you will probably not need a short sale.
• Copies of Bank Statements
  • Gather up bank statements, and be prepared to explain any recent, withdrawals.
• Proof of Income and Assets
  • Lenders will need to know your current financial situation.  You will be required to provide information on any and all assets you may have.
• Comparative Market Analysis
  • Your real estate agent can prepare a CMA for you, showing the sales amount of recently sold comparable properties.
• Purchase Agreement & Listing Agreement
  • When you reach an agreement to sell with a prospective purchaser, the lender will want a copy of the offer, along with a copy of your listing agreement.

Now if everything goes well, the lender will approve your short sale. As part of the negotiation, you might ask that the lender not report adverse credit to the credit reporting agencies, but realize that the lender is under no obligation to accommodate this request.   ... Get the entire story here about.com

• Closing costs will include title and escrow fees (if the seller is responsible for any portion of them, which will depend on your county), attorney fees, a portion of unpaid property taxes, re-conveyance fees, notary fees, delivery fees, documentary fees and/or transfer fees.
• Remember that the amount on your monthly loan statement does not include interest. Interest is accrued until the date a loan is paid off, so you may have as much as 30 days of interest on top of the balance owing, and you'll need to include this interest in the total payoff amount.
• If a property is sold under a short sale, the lender may require the buyer to make up the difference, either through a personal obligation or a collection.