A short sale is when a home is sold for less than the balance on the mortgage, while a foreclosure is a seizure of the home by the lender. Both are financial options available to homeowners who fall short on making their required mortgage payments.
Before a short sale can begin, the lender needs to provide documentation that explains why a short sale is necessary, because it's possible the lending institution could lose money in the process. The proposed buyer usually negotiates with the homeowner first, then seeks approval from the lending bank. A short sale cannot happen without the lender's approval.
A foreclosure, on the other hand, is initiated by the lender. The lender moves to force the sale of the home when the borrower is delinquent, hoping to make good on the initial investment of the mortgage. Many foreclosures take place after the home has been abandoned by the homeowners. If the foreclosure takes place while the homeowner still occupies the home, an eviction process is commenced. Once the lender is successful in executing a foreclosure, it usually orders its own appraisal and commences the sale of the home in a trustee sale, where potential buyers can bid on the homes in a public auction.