A short sale occurrs when the loan balance, commissions and closing costs in a sale exceed the loan balance on the property being sold. That it is why the property is being sold short.
In order to complete the transaction. The contract between Buyer and Seller has to be approved by the Bank losing the money (the bank that lent originally to the Seller). This process may take some time (That lengh of time will depend on what bank is, the workload in that particular bank, and how fast is the seller providing all required documents for the short sale to be processed), It could be a few months. A Hardship is a requirement for the Seller to qualify for a short sale.
Once the short sale is approved, if it is approved, The bank will issue an APPROVAL LETTER stating the conditions for the short sale, with the name of the Buyer. That Approval letter is valid only for a certain amount of time a month or so. With this approval the Buyer can begin his/her financing process if using financing to purchase the property.
A short sale is a much better option that foreclosure or Deed-in Liu-of-Foreclosure, The debt will show in Seller credit report as settled or paid as agreed. A foreclosure can stay for 10 years. The Deed-in-liu-of-foreclosure is like a soft foreclosure. Homeowner is returning property because can not pay it. Some banks do not accept it.
A short sale may have consequences if property IS NOT the PRIMARY RESIDENCE of Seller, bank may seek a Deffiency Judment thru the court system, It may want an unsecured note for the difference lost or simply send the Seller a 1099 form for the amount of money lost. This amount is taxable. The bank will have 4 years to do either one. Check with a Lawyer and Tax advisor for solutions forr these consequences. If property is Seller's primary residence, and short sale is closed up to December 2012 any 1099 form " earned income" (bank's loss) will not be taxable. Seller will walk free and clear.
There are short sale that are faster and where the Seller gets $3,000 for relocating costs. Check HAFA Short sales to see if you qualify.