As property values continue to head south, many people are finding themselves upside-down on home loans and possibly facing foreclosure. A "short sale" can provide an alternative to foreclosure if you're able to negotiate a deal with your mortgage lender to take less than you owe on the loan and consider the mortgage paid in full. Say you owe $400,000, but you can sell your house for $300,000. If the lender allows you to sell and satisfy the loan, you've sold your house short.
If you're considering short selling your home, it's important to remember that a short sale will damage your credit score just as much as a foreclosure. They're both reported to the credit bureaus as a an account settled for less than the amount owed. Therefore, the short sale will drive your credit score down and remain on your credit report for seven years.