We have seen a recent increase in the number of short sale contracts that contemplate a leaseback to the seller. Please be advised that most short sale lenders will not permit any such arrangement between the buyer and the seller that permits the seller to remain in the property post closing. In fact, most short sale lender affidavits/agreements specifically prohibit the practice.
As such, if your seller expresses an interest in leasing the property back post closing (or otherwise occupying the property post closing), the seller should first contact his/her short sale lender to determine if their lender will permit the arrangement. In most cases, they will not.