If the homeowner simply cannot get back on track and needs to sell (or dump) their property, a short sale is a good possible alternative.  In order for a short sale to work.
(1) There needs to be a legitimate hardship on the part of the homeowner i.e. illness, death, job loss, divorce, etc.
(2) the homeowner cannot have a bunch of other assets i.e. cash in the bank, big 401K accounts, other properties, etc. or a big income.

A short sale can be good for a homeowner in many ways.  First of all, a short sale reflects much more positively on your credit than a foreclosure.  A short sale shows up as a partial payoff, whereas a foreclosure is what it is - a repossession of a house. 
Usually after just two short years after a short sale, the borrower may have a great credit score again.  On the other hand a foreclosure will show bad on your credit for 7 years or more and will have to be disclosed on future credit applications.

Secondly, a short sale can often be negotiated where the personal liability of the borrower is waived and therefore no deficiency judgment can be obtained for the shorted amount. 

Thirdly, both the homeowner and the lender(s) are rid of a non-producing, unwanted asset. 
This is often a huge relief to the homeowner who may be under incredible stress because of the imminent foreclosure situation. If the lender had to repossess this house, it may be another year before the foreclosure finalizes and the house is re-sold to a new buyer.  A short sale shortens this whole process drastically and hopefully saves the lender tens of thousands in fees and losses.

Fourthly, Congress passed a law back in December the Mortgage Forgiveness Debt Relief Act of 2007,which allows this debt relief to be a non-taxable event.  So in most instances, there are no negative income tax consequences for the borrower in doing a short sale.

Fifthly, short sales keep the economy moving.  Another sale means that lenders get some of their money back to lend out again (hopefully smarter than the previous time); title companies, mortgage brokers, Realtors, surveyors, taxing authorities, etc. all get paid; a neighborhood eyesore gets cleaned up; and a new buyer gets a good deal.