As most of us know, home prices skyrocketed in 2004 and 2005. By the end of 2005 the feeding frenzy came to a holt. Those that thought home prices where going to continue to climb where in for a surprise. Instead of continuing to rise, many homes in the country have dropped in value, some dropped as much as 50% or even 60% Yet those that bought homes at the inflated prices or refinanced their homes during the boom now find that they owe more against their home than what the home is worth. If they want to sell their home (and many have to because they can't afford the home any more, for various reasons, whether it be loss of job or interest rate increase) they're finding that they can't get enough to pay off their existing mortgage(s). Now the banks have a decision to make. Do they foreclose on the home and then try to put it on the market at the much lower value, or should they allow the owner to sell the home at the lower value and accept the lower proceeds as full payment for their loan. Banks have found that they actually net more money if they allowed the owner to sell their home at the lower market value and accept whatever the proceeds are as full payment for the loan. In addition, banks now don't have to deal with the maintenance of the home, the legal aspect of the foreclosure, or the possible liabilties connected with the home. So they accept a payoff "short" of the amount owed to them. Thus you have the term "short sale".