A short sale is a sale that is made at a lower price than what is owed on the mortgage, in hopes that the bank will forgive the remaining balance. Usually, there is only one scenario that warrants a short sale - foreclosure. When a homeowner has been notified that foreclosure is imminent, they often times pursue a less damaging alternative, such as a short sale. Depending on the details of the situation, the lender may bring it up as an option, but every homeowner is not necessarily eligible for a short sale.

In a short sale, although the home would still be lost, the negative affects on a homeowner's credit can be drastically lower. Whereas a foreclosure remains on credit reports for seven years, a short sale would only be seen for several years, or even less. By using as short sale, homeowner's essentially accepting a lesser sentence, in exchange for selling their house now.