According to Wikipedia, "a short sale occurs when the proceeds of a real estate sale fall short of the balance owed on the property. 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."
A short sale is also:
* A way for the bank to recover more of their money than if it went to foreclosure.
* An alternative to foreclosure.
* A private matter between a borrower and a lender, it is a bank process rather than a legal matter like a foreclosure.
A short sale may be considered after all other options have been exhausted with the bank. Banks may also have other re-payment options and leniency programs that might also work and should be investigated first.
Downsides to a short sale include:
* A short sale will affect your credit score.
* Relief of the debt may be treated as income for tax purposes.
* Even if the lender agrees to a short sale, the lender may not agree to forgive the debt entirely. You may still have to pay money back.
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