What is a "short sale" in real estate?

A "short sale" in real estate refers to a situation where the proceeds from the sale of a property are less than the amount owed on the mortgage. In such cases, the lender agrees to accept a lower payoff to avoid the costs and time associated with foreclosure. This situation typically arises when a homeowner faces financial difficulties and can no longer afford their mortgage payments, but they wish to sell the property to mitigate their losses.

The essence of a short sale is that the lender must approve the transaction, and this can often involve a lengthy process. The lender is essentially taking a financial loss by allowing the sale to occur for less than the total amount due on the mortgage. Thus, the definition aligns precisely with what constitutes a short sale in real estate transactions.