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When the Arizona market was flying high in 2005-2006, many buyers utilized 100% financing or interest only financing when they purchased their homes.  Since this was the peak pricing time for housing, many of these sellers homes are worth less then they paid for them and in most instances, worth less then the mortgage on the home.

The seller has an incentive to offer the home at a loss vs being foreclosed on, considering that their lending insitution agrees on taking the loss.  An example may be that John bought a home in 2005 for $500,000 with 3% down and an interest only loan.  Now the home is worth only $425,000 based on current comps and would have to take a $75,000 loss in order to sell the home.  There may be many reasons for John to need to sell, but by short selling the home, John loses his original 3% and the bank takes the remainder of the loss.  The bank's incentive to take the loss now verses a foreclosure is that they would most likely lose less then formally foreclosing on the home.

These homes take longer to purchase because banks have to agree on the purchase price and you have to jump through a few extra hoops to make the deal happen.  It can get you into a home at a very reasonable price.  These work out well if you have the money or a readily available lender that will work with you.