A short sale is when a home is sold for less than the amount owed on the mortgage for the home. This occurs when the bank agrees to take less than the full amount due on the mortgage.
A seller does not have to be behind on a home loan to seek a short sale. If sellers wish to pursue a short sale, they must owe more than what the home is worth, demonstrate the house cannot be sold for the amount owed, and suffer from a legitimate financial hardship that makes the mortgage unaffordable.