Foreclosure - A situation in which a homeowner is unable to make principal and/or interest payments on his or her mortgage, so the lender, be it a bank or building society, can seize and sell the property as stipulated in the terms of the mortgage contract. - This process can have a devistating impact on your credit rating. 

Short Sale - Prior to a foreclosure, it's a situation where the homeowner attempts to sell the property and cannot secure a price greater than the existing mortgage(s) and yet the bank(s) agree to accept a shortage rather than proceeding with a foreclosure action. - In this instance, your credit rate is effected by not as severely as a foreclosure.