Extenuating circumstances influence whether or not banks will discount a loan balance. These circumstances are usually related to the current real estate market climate and the individual borrower's financial situation.

A short sale typically is executed to prevent a home foreclosure. Often a bank will choose to allow a short sale if they believe that it will result in a smaller financial loss than foreclosing. For the home owner, the advantages include avoidance of having a foreclosure on their credit history. Additionally, a short sale is typically faster and less expensive than a foreclosure. [1]

In short, a short sale is nothing more than negotiating with lien holders a payoff for less than what they are owed, or rather a sale of a debt, generally on a piece of real estate, short of the full debt amount.

Lenders have a department (typically called a loss mitigation department) which processes potential short sale transactions. Typically, lenders do not accept short sale offers or requests for short sales until a Notice of Default has been issued or recorded with the locality where the property is located. Lenders have to approve of any buyer's or listing agent's commission in advance, a primary reason for non-brokered short sales with a specialist or facilitator to save on the margin. [2] Many of these facilitators work with a private lending party for their financing, such as a partner or syndicate.

Lenders have a varying tolerance for short sales and mitigated losses. The majority of lenders have a pre-determined criteria for such transactions. Other distressed lenders may allow any reasonable offer subject to a loss mitigator's approval. "Red tape" is very common in short sales, similar to REO and HUD properties, requiring potentially multiple levels of approvals and conditions. Junior liens, such as second morgagees, HELOC lenders, and HOA (special assessment liens), may need to approve of the short sale. Frequent objectors to short sales include tax lieners (income, estate or corporate franchise tax - as opposed to real property taxes, which have priority even unrecorded) and mechanic's lien holders. It is possible for junior lien holders to prevent the short sale.

While it is frequent if not common for a lender to forgive the balance of the loan in question, it is unlikely that a lien holder that is not a mortgagee will forgive any of their balance. Further, it is common for a lender to omit updating the zero balance and settlement option on the mortgagor's credit report, or even flat refuse to do so "due to their financial loss."

[edit] The Mortgage Forgiveness Debt Relief Act of 2007
When the lender decides to forgive all or a portion of a borrower's debt and accept less, the forgiven amount is considered as income for the borrower and is liable to be taxed.

However, after the signing of The Mortgage Forgiveness Debt Relief Act of 2007 by President Bush, amendments have been made to remove such tax liability and allow the borrower and lender to work freely together to find a common solution that is beneficial to both parties. This protection is limited to primary residences so consultation with a tax advisor is necessary ensure that a borrower qualifies. [3]

[edit] References
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a co-worker had there home sold in 3 weeks going though remax and spending some money on advertising, local tv stations, home buyer magazines ((the free publications)) and online though various institutions… wellesbowen, homes.com, remax's own website and many more, even craigslist…

you need to stop being lazy.. competitively price your home… drop your asking to 10k less then the average of the neighborhood your in (if you can afford it) and do some research on the local neighborhood.. the county auditor should have the land and home values on every single house on your street…

i just bought a home that was listed only 3 days prior… its alla bout price and what your willing to give the buyer.. appliances, a finished basement, a good kitchen… how "energy smart" is your furnace and water heater… also how "green" is your home thats the big one.. buyers today do not want to do any work… if they do they move on the market is saturated with property that doesn't need fixed up at all…

big ones:
good lawn no dead spots
newer roof (1 layer or Tear off)
also a good grade in the lawn so water goes away…
vinyl siding or brick
not in a flood zone
no high power lines near buy
no trains
no busy streets
if YES to above, sound barrier wall?
newer kitchen, counter space is a big one
finished basement or 2 car garage
((no sign of water damage or smell))
FHA approved plugs in bathroom and kitchen
FHA approved wiring in basement attic

that was our list… and we found a lot that fit it… it came to price in the end…

we turned down homes before we even saw them because they didnt even meet our needs on paper so… buyers are very picky as they are allowed to be in this market…
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Buyers are often struggling to come up with the cash for a down payment, so consider creative ways to help them conserve cash. if they express needs during the showing, a remodel of a room, or redecorating, consider offering to prepay work with a contractor prior to closing in exchange for a full price offer, vs the normal %discount most people are accepting in your area off list price.

Price the house 5 to 10k more than you are willing to take, and indicate willingness "to work with" a buyer who seems interested but wants something done to the house to make it just right for them.

good luck!
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Without knowing all the facts, if you purchased your home in the last four years or earlier, their is a very good chance your home value has decreased, so there maybe a chance the note value is higher then the appraised value, negative equity

You may want to have an appraisal done on the house, if the appraisal comes in lower then what you need to sell, you may not be able to sell

since any one purchasing your house would most likely need a mortgage, the mortgage company will only right a note for the appraisal number hence even if you find a willing buyer at your price they may not be able to get a note for that price

very common problem in today's market
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A short sale is the sale of a home for less than the loan owed on it. If the mortgage company agreed to the short sale, the seller would not be liable for the repayment of the mortgage after the house is sold. The mortgage company would receive all the proceeds and would consider the amount received as satisfying the full obligation.
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