A short sale is a sale of real property in which the sale proceeds fall short of the balance owed to the lenders. It often occurs when a borrower cannot pay the mortgage on their property, but the lender decides that selling the property at a moderate loss will obtain a better value than a foreclosure. In order to make a short sale agreement, however, you must get approval from your lender and other lien holders.
A short sale is often the best option for homeowners who owe more on their mortgages than their house is actually worth. It is a good way of avoiding the negative effects of a foreclosure. Although a record of the short sale will remain in your credit report for up to 7 years, it is far less damaging to your credit than an actual foreclosure.