What happens if my mother's house is in a short sale pending a contract and she dies?

The home is an asset of your mother's estate. It remains subject to the mortgage. The representative of the estate can complete the short sale once a probate is opened and the representative is appointed by the court. Opening a probate could set a time limit for claiming a deficiency against the estate. Claims must be filed within 6 months of actual notice of opening the estate being served upon the creditor. The mortgage could be paid off only if the other assets in the estate are sufficient to pay the outstanding balance due.

Why would the home be paid off? Is there an insurance policy where the lender is the beneficiary? Did Mom have a will or not? Are there any other assets? Bank accounts, stocks, bonds etc. If the only asset is the house, then you have two choices; one is to simply walk away and let the bank foreclose, the other depends on whether there is a will and if not who the heirs are.

See an attorney to evaluate the options. It may be that the estate can complete the transaction through the heirs, but it may also be that a court probate proceedings is either necessary or advised. Your mother's estate is contractually bound in the transaction, but there may also be legal outs, or a mutual voluntary cancellation, that should be explored. All these decisions may have ramifications. You need help to sort it out. In some instances, you may be best advised just keeping hands off.