In real estate, a short sale is a sale of real estate in which the proceeds from the
sale fall short of the balance owed on a loan secured by the property sold. In a
short sale, the bank or mortgage lender agrees to discount a loan balance due to an
economic or financial hardship on the part of the mortgagor. This negotiation is all
done through communication with a bank's loss mitigation or workout department. The
home owner/debtor sells the mortgaged property for less than the outstanding balance
of the loan, and turns over the proceeds of the sale to the lender, sometimes (but
not always) in full satisfaction of the debt. In such instances, the lender would
have the right to approve or disapprove of a proposed sale. A short sale typically is
executed to prevent a home foreclosure, but the decision to proceed with a short sale
is predicated on the most economic way for the bank to recover the amount owed on the
property. Often a bank will allow a short sale if they believe that it will result in
a smaller financial loss than foreclosing as there are carrying costs that are
associated with a foreclosure.
source wikipedia