So when you conduct a short sale, somebody should be negotiating with the lender as to the end result. The best result is that the lender agrees to let the mortgage to listed as "settled" or " paid in full". The truth is that most lenders will not agree to a short sale unless you can prove hardship and are in financial distress.
I am curious as to what the lender as agreed to?
The other truth is that a short sale will hurt your credit, however not as badly as a foreclosure.
Know the end result up front and try to negotiate.
You need to see a real estate attorney and a CPA. Whatever you do, you should take those two steps immediately to get the proper advice.
I wish you the best!