The Term short sale refers to a sale in which insufficient equity to cover all of the sellers closing costs (commission, title insurance premiums, escrow fees, termite and other repairs, homeowners association dues, etc) and the payoff of the existing loans and/or liens of record. 

 

In many cases the seller is not able to bring in his own funds so would request the lender authorize a short sale where the shortage is deducted from the funds otherwise due to the existing lender or lenders.

 

It is important to remember that a short sale is a strictly voluntary act on the part of every creditor who holds a recorded lien on the property.  In order for the excrow to close each of them must agree, in writing, to accept less than they are owed, or maybe nothing at all, if they are a junior lien holder.  Unlike a foreclosure, a short sale does not automatically wipe out junior liens so "zero" demands and full releases and reconveyances must be obtained from each creditor prior to close of escrow