A short sale occurs when a home is sold for less than the loan held on it. For instance, a home sold in 2006 was purchased for $475K with 5% down. The market drops, the value is less, and the owner has financial difficulties or is in an adjustable mortgage and can't make the payments. If the loan is $450K and the current market value is only $350K, the home can't be sold unless the lender agrees to take a settlement of less than the amount borrowed.