From what I have heard the bank and the person owning the house must both agree in a short sale. Usually what happens is the owner tells the mortgage holder they can not catch up the behind amount on what is owed(due to loss of a job or just financial hardship)and so both agree it is better to sell the house at a loss and get some money rather than have it forclosed on which incurs fees, and if done correctly it could possibly save a owner from a bad credit rating.

Right now short sales are very popular because of the housing market. Houses that were bought for 200,000 just a few short years ago now are only worth 125,000 and the person owes 175,000 still on it. So in a short sale both parties acknowledge they will not get the amount owed on the house but more closely to what the house is worth now. It is a huge mess but in some cases is the only way a family can keep out of bankruptcy or financial ruin. Better to cut your losses then try and pay on a debt you will never get paid off.

((HUGS)) to your friend.