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I applied for a loan modification through my mortgage company, long story short after about 2 months I get a letter saying that they are unable to modify my loan. They sent me another letter saying that I may be eligible for a short sale. I am now just starting the process, but my question is: Do you think that they are more likely to approve the short sale, since they were the ones who suggested it? Thanks
Without details on why the lender was unable to work out a modification -- if your finances are really bad and you are already headed to foreclosure -- it is hard to know why the lender may be preferring a short sale, though generally this can be better than a messy foreclosure.
In many cases the lenders are just too disorganized to provide a solid answer to any serious question. Many people stumble around for months trying to get out from a house that they cannot afford and the lender is not able to provide a solid answer as to what is the best course of action.
If you want to remain in the house, and believe you do enough income to afford to do so with some reasonable adjusts to the rate / length of mortgage then perhaps there was some miscommunication.
OTOH if your income could not support the mortgage without major reductions in what you owe to the lender and the home's value has retreated to a point far below what you owe on it, perhaps a short sale is best.