A short sale occurs for the Seller when the home sells for less than the seller owes. The Lien Holder, Mortgage Holder, will agree to this option for the Seller and accept the loss. This allows the Seller to avoid a Foreclosure which could cause a bigger impact on their credit.
What does a Short Sale mean for a Buyer? A Short Sale can be a bargain for the Buyer. It takes patience and a lot of it though. Some banks work faster than others and there is no way to know when the sale will be concluded. That needs to be understood before going forth. The Buyer will need to be able to accept the terms of the Seller, with no contingencies. The home is sold as-is. If the Buyer is looking for the bank to make repairs, "forget about it". As the Buyer you can have forms in place and verbiage in place to walk away from the sale for reasons agreeable to the Seller and Buyer. A Realtor like me who specializes in Short Sales can help you with those issues.
Once the Seller and the Buyer agree to the terms of the contract, the title attorney will need to make certain there are no title issues. The Buyer needs a clear title to the property being purchased. The process sometimes is simple and the process sometimes is not so simple but be informed before you Buy.
One more thing, now that the tax liability has been eliminated for the Seller for another year, if the Seller needs to seek a Short Sale, Do It Now!