I'm assuming you've done the math and feel that even with a loan modification you'll be "working with the bank & still having them foreclose". If foreclosure is inevitable, many of the responders here will advocate a short sale, not necessarily because it's the right thing to do, or because we believe the banks need to be protected, it's simply a better choice for all involved.

A short sale indicates to future lenders that you've tried to resolve a hardship rather than just walking away from your debt and a big issue is a successful short sale will have your lender(s) acknowledging satisfaction of the debt. There won't be future concerns about an unsecured junior lien coming back later and seeking payment or the potential need to go through bankruptcy to eliminate a huge unpayable debt. It's a practical choice that keeps the home secure and helps you in the long run. I think it's fairly safe to say that many people who are attempting to short sell are not current on their payments while the home is being marketed.

Walking away is certainly quicker and perhaps less painful, but it probably isn't the best economic decision. If you aren't making loan payments, the lender will foreclose, but that takes some amount of time which hopefully would allow you to build some cash reserves. You obviously wouldn't want those cash reserves with the same lender/bank that holds your home loan because they will take that money from your account to offset the loan default. You'll need the cash reserve for an increased deposit on a rental and you do not want to be in the property after the trustee sale. After the trustee sale, the new owner will begin eviction proceedings and you don't want that as part of public record. You'll be able to purchase a home 3-5 years after the foreclosure under Fannie Mae/Freddie Mac guidelines assuming you have re-established credit and a good downpayment.

I do not see foreclosure in these times as any kind of moral issue, it's all about what makes economic sense in each person's individual circumstance.

Disclaimer: This isn't legal advice or lending advice, just a reflection of what some people consider when facing foreclosure.