By default if you are buying a house as a short sale there is at least one lien on the house. Just because it is a short sale does not mean it will go into foreclosure. Sometimes the owner will stay there paying until prices go back up. They want to move, but won't move until they don't have to pay out of pocket. Now if they aren't paying the mortgage now, then at some point it will go into foreclosure. If you have started paperwork it is possible you could get the house, but will likely take some months. The department your seller is dealing with now, is a totally different department than the REO department that handles foreclosures in many cases, unless it is a very small bank. If it is a big bank/lender like BofA, Countrywide, etc then they'll be different people and different departments and I'd be surprised if they talk. Also it could be months before it goes to foreclosure and comes out where you can buy it.
My thought is if you really need to move at the end of the month, then you might look at another house. Your agent should be able to give you an idea on how to proceed.
It takes much time and endless patience to see a short sale through. There is no predictability and banks do not make decisions rationally.
If the amount you are willing to pay is less than the collective acceptances and approvals of all lien holders, it won't work.
A bank can also abandon your offer in favor of another if one comes in a few thousand higher than yours. Be prepared for surprises.......and be patient.
If you are lacking in time or patience, a short sale might not be the route for you.
Bruce and Deborah have already given you great definitions of what a short sale is. So since they've already done the hard work here, just let me add my two polished cents....
Short sales can be GREAT deals or more often lately, they are just pain in the butt houses that were financed over 100 LTV anyway and all the work you're putting into it may not be worth it... I've had clients think that ALL short sales meant GREAT deals... WRONG! Just make sure you're ready for patience....
I had a client wait for about a month to get back to us on a short sale only to find out that we were replaced by another offer that was a couple grand higher... very frustrating.... If you're not emotionally committed to the deal... then you're ready for short sales!