A Short Sale in real estate occurs when the outstanding loan against the property is greater than what the property can be sold for in the open market.
Short Sales are a way for a homeowner to avoid foreclosure on the home and still be able to pay off the loan by settling with the lender.
Some lenders are willing to work with you by reducing the amount owed or by making other arrangements, for example, a promissory note for all or a portion of the shortfall between net to the bank and the amount remaining on the promissory note. Generally speaking, lenders require significant documentation prior to agreeing to a Short Sale.
These include, but are not limited to, Hardship Letter; proof of your last two-three months of Income & Expenses, Listing Agreement , Broker contact information; Offers on the property and Proposed HUDF-1 Statements.
Assuming that you have been able to gather everything required for the Short Sale, you now have only to sell the property.
If a property is sold under a Short Sale, the lender may require the buyer to make up the difference or deficiency, either through a promissory note or via collection efforts.