When you borrowed the money to buy or refinance the house, you most likely signed a promissory note making you personally responsible for repayment of the money if the mortgage isn't satisfied by the sale of the property. The question is whether or not the bank will actually pursue you for the shortfall. If you have no significant assets they may not bother, and you may be eligible to get the debt discharged in bankruptcy if that route makes sense for you.
In most cases, short sales need the approval of the seller's lender. Usually, if approved, the lender agrees to forgive the difference between the amount owed and the new purchase price. Any contract of sale should contain specific language indicating this is a short sale transaction, subject to approval by the seller's lender, specifically relieving the seller of any outstanding obligations under the note. Seller should obtain written confirmation of this from the lender. Keep in mind that lenders would rather see the property transferred to someone who can make some payments (even if less than the original owner). Otherwise, the lender isn't making money. So, the lender is motivated to approve the sale; provided the terms are reasonable.
For a discussion on your specific case, contact a real estate attorney for an evaluation and consultation on the specifics of your transaction.
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