A short sale is when the Seller is selling their home for less than the amount they owe the bank. You should know that the vast majority of short sales are not approved by the lender because the Seller has the ability to pay off the difference.
Short Sales require the Seller to prove hardship and that they truly have no assets at all (this includes 401K's or other retirement funds, stocks, money in the bank, or other valuables that could be liquidated.
You should also know that unless you engage an attorney to assist you, that you will receive a 1099 for the amount you shorted the bank. For example you owe $200,000 on your mortgage, the bank agrees to allow you to sell the home for $165,000 You will get a 1099 for $35,000 and will be responsible for paying the taxes on this as if you had been paid it. In addition the bank will file what is know as a deficiency judgement. which is a personal lien on you and your husband for the $35,000 so that if you ever want another mortgage you'll need to pay them first. In North Carolina these are good for 10 years and can be renewed indefinitely. It won't matter what state you live in, these deficiency judgement are on your credit record. With an attorney you can probably avoid this and may be able to avoid the 1099. North Carolina is an extremely bank friendly state and seems to care much more about the banks than it's own citizens.
Buying a short sale is extremely difficult, the list price means absolutely nothing, it's an arbitrary price made up by a Seller (most of which have never spoken to their lender) and means nothing.
While the Seller signs the contract their signature counts for nothing, as the sale has to be approved by their lender and as I've already written most are not. You need to plan on 2-6 months to even get a response from the bank as to whether they might accept your offer or not and understand that they may want to renegotiate the terms. The only exception to this is if the property is clearly marked as an approved short sale, in other words the Seller has already been approved for a short sale. Here in NC this accounts for less than 5% of all the properties I see listed as short sales. My own advice is to avoid them like the plague.
Hope this helps you understand them a little and I wish you all the best.