Whenever you are trying to sell your home for less than what you owe on it (your mortgage), it is considered being short, or a "short sale".
There are many things to consider when considering a short sale, including: tax repercussions, personal liability, credit impact.
Each homeowner has their own set of circumstances and it really varies from one situation to the next in terms of what to do. I could give you a cookie cutter "do this" response, but that isn't the best way to go.
I would recommend contacting one of the following homeowner counseling resources for free assistance:
Neighborhood Assistance Corp. of America
Homeownership Preservation Foundation