You asked about a Short Sale..., which is very different than a Foreclosure.
What is it: A Short Sale is a term that is used when a Bank or Lender, who holds the mortgage or Note on a property that is seriously delinquent by several months, is about to Foreclose and will consider offers that are less than the payoff of the underlying note(s). They would also like to avoid a foreclosure which can lead to an REO or Bank owned property.
The process: When done properly, a Buyers Agent will put in an offer, on his/her clients behalf, to the home owners Licensed Agent to then be combined with a required "Short Sale Package" that will be considered by the home owners Lien Holder, who in many cases will sell for less than what is owed on the property rather than foreclose and chance the less than desirable options of a Foreclosure & Auction or worse yet... the property becomes an REO headache. Important Note; unless the property has been taken back by the Bank or Lien Holder via a full Foreclosure, Lien Sale or Auction etc..... the Short Sale will require the owners approval. Thus "short" sale", which is short of amount due. The seller or owner will not receive any funds, as the funds received from the Lien Holder was less than the home owners payoff. However via this process they may avoid the full foreclosure and hit on their credit.
*Important Note: Most Lien Holders may "indicate" that they accept an offer, when properly tendered, but NOT actually give final approval of the ... "Contingent on Lien Holder Approval" stipulation on a buyers offer of a Short Sale. Listing Agents must however put this wording into a paragraph or a separate addenda so stating this fact on their clients behalf, but the Lien Holder generally will not accept these offers in a conventional way...ever. You will normally NOT get an affirmative reply, notice of approval or letter of acceptance. NADA, Zip, Nothing... it will just make its way to closing and everyone must hope for the best. It really should be criminal for a Lender, seller or Bank to NOT give... in all good faith, some kind of letter or written approval or denial of a buyers offer...but it happens every day. I am involved in two Short Sales right now, one is closing this coming week after a lot of work on my part to do the listing agents job of getting the right paperwork from their client. Touchy thing to do, but sometimes we have to step in and help all involved. - This process and take 90-120 days if everyone knows what they are doing.
There is a lot more info on short sales online and my link below.
Best of luck,