A law client recently asked me to prepare a "short sale" letter for him. Unfortunately, he didn't have a buyer for his home, so the short sale letter would have been of little use. There does seems to be a widespread mis-understanding regarding the difference between a short sale and a deed in lieu of foreclosure.
A short sale can be requested from a lender when the homeowner receives an offer for their house and the amount offered is less than the amount owed on the house. The sale comes up short and the homeowner asks the lender to accept the offered amount as payment in full for the mortgage loan. To request a short sale you can use this letter as an example.
A deed in lieu is actually more common in today's market. The homeowner has had their house on the market for a long time and there has been few, if any, offers. Rather than continue to make payments on the house, the homeowner asks the bank to take the deed to the house instead of (in lieu) of foreclosure. The bank may consider this if there aren't any significant liens on the property, such as a 2nd mortgage or large IRS liens. Here is an example of a request for a deed in lieu.