There are too few active buyers in the real estate market these days -- but every one of them seems to be looking to buy a foreclosure or a short sale.

Foreclosure is a fairly well understood process, but as "short sale" signs sprout like weeds, you may wonder what it's all about.

When a lender agrees to accept a mortgage payoff amount less than what is owed in order to facilitate a sale of the property by a financially distressed owner, it's called a short sale. The lender forgives the remaining balance of the loan.

Everyone loses -- or wins

short sales are a mixed bag for the buyer, the seller and the lender.

If you're a seller, a short sale is likely to damage your credit -- but not as badly as a foreclosure. You'll also walk away from your home without a penny from the deal, making it difficult for you to find another place to live.

The buyer gets the property at a reduced price, but the property in all likelihood has its share of problems -- think fixer-upper -- and will need to go through considerable red tape in order to make the deal happen.
Read more: Buying a home in a short sale can be profitable http://www.bankrate.com/finance/money-guides/10-crucial-steps-to-short-sale-buying-1.aspx#ixzz1IBlUwMOZ