“Today some neighbors of ours are moving out, and when we were researching the possibility of selling our house, comps and the like, their home came up as a short sale. There was never even a For Sale sign out front.”
There are some people who take out a big loan on their homes and even though they could make the mortgage payments, they decide “it’s not worth it financially” — they do a short sale or even let the bank foreclose.
Same as you, I was researching house sales in my neighborhood and found that someone on my street originally bought the house for $x, then they refinanced and took out a lot of cash when prices were up, then kept the cash, and let the bank foreclose recently. Then they bought another house cheap and spent signifcant amount of money remodeling, so clearly they had no financial hardship.
The bank must have auctioned the foreclosed home, because there was no for sale sign on that house either.
Unethical, but legal.