Is the lawsuit pending against you or against your home? Shortsale has to be approved with the bank that lended you the money. The title insurance company will review the title to make sure they can provide clear title to the new owner. If there is any lien filed against your home they will get paid off from the proceeds of the sale and your lender will be aware of that. I hope I could provide you some info. But you need to consult with an attorney to get the best answer. I wish you the best of luck and take care.