by 
The Curious Bag
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A short sale is when a seller sells his house for less than the debt owed on it. The lender on the mortgage accepts a less than full payoff on the loan in exchange for removing the debt from its books.
Significance
A short sale is an alternative to foreclosure and bankruptcy for many borrowers. It also prevents the bank from taking over the property as in a foreclosure.
Function
A short sale allows a seller to walk away from a bad debt without further destroying his credit score with a bankruptcy or foreclosure.
Features
A short sale usually occurs when a borrower has been late on several payments and owes more than the house is worth. It is an attempt to avoid foreclosure and complete lack of payment on the part of the borrower.
Considerations
Lenders do not prefer short sales due to the less than full repayment of the mortgage debt.
Misconceptions
Short sales do not pull a borrower's credit score down as much as a foreclosure would, however, there is still a definite negative effect on a borrower's credit score.
Source:
MortgageReliefFormula.com: Real Estate Short Sales Definition
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