A short sale is a sale of real property in which the proceeds from reselling the property are lower than the balance of the mortgage. In a Short Sale the mortgage loan holders agree to release their encumbrance on the home and approve the sale price as a total pay off of the mortgage loan. In a well negotiated Short Sale the shortage is waived and the mortgage lender release homeowners from their obligations to pay off any shortfalls regarding the home loans.
A short sale is normally utilized as an option to foreclosure since it minimizes additional fees along with costs to both the financial institution and borrower.
When analyzing a foreclosure vs. short sale, a short sale will likely typically be a more desirable scenario for both the homeowner and lender/bank. It minimizes the loss for creditors and minimizes the negative consequences to the property owner.