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.

A buyer brought up a question to me:

"We have to pay $100 extra a month for the insurance on our house loan. What is this? Is this true? Is there a way to avoid this?”

This is called mortgage insurance. If you have less than 20% cash down your lender may require mortgage insurance. After a history of regular payments it is possible to get the requirement dropped or you can refi. It is possible to obtain a loan without mortgage insurance, but you may pay a higher rate. Shop around a bit and make sure you read the fine print. Depending on the amount of your loan, by avoiding the mortgage insurance, your alternative may end up being a higher payment overall than your payment with mortgage insurance.