A short sale is where a lender agrees to accept less money than what the borrower owes on his mortgage. The home is put on the market and sold for less than the outstanding mortgage. The lender may forgive the remaining balance on the Note and mark the account as paid. Because of the market conditions, short sales have become a common practice. Losses for a lender are minimized through a short sale. If the property is foreclosed, the lender could face additional costs of attorneys fees, real estate taxes, real estate commissions, insurances and maintenance of the house. Homes sell less at a foreclosure sale than at a short sale.
Disclaimer: This is not legal advice and I am not your lawyer. The information provided in this forum is for discussion purposes only, and is no substitute for an in-person consultation with an attorney who can analyze all of the facts and determine how your state and local laws may apply to your specific situation.