A short sale is a process used when the value of real estate falls to a point less than the balance outstanding on the mortgage loan. A short sale involves two steps. First, the mortgage lender agrees to discount the loan, to lower the amount due on the loan to a point where it is more in line with the value of the real estate. Second, the owner places the property for sale at a more competitive price with the objective of using the purchase proceeds to pay off the outstanding mortgage loan.