What constitutes a "short sale" in real estate?

A short sale in real estate occurs when a property is sold for less than the amount owed on the mortgage. In this scenario, the lender agrees to accept a reduced payoff to release the lien on the property, even though it is less than what the borrower owes. This typically happens when the homeowner is in financial distress and unable to continue making mortgage payments, which could lead to foreclosure.

The key aspect that defines a short sale is the lender's approval, as they are effectively taking a loss on the investment. The intent is to prevent foreclosure, allowing the homeowner a way to alleviate debt while providing the lender a way to recoup some of their losses by selling the property instead. This complex process may require negotiation and documentation to prove the homeowner's financial hardship to the lender.

Other options do not accurately reflect this concept. While a quick sale at market value implies a faster transaction, it does not necessarily relate to the financial distress that characterizes a short sale. A profitable sale for the seller contradicts the fundamental principle of a short sale, where the proceeds are insufficient to cover the owed mortgage amount. Similarly, simply listing a property for a short time does not inherently connect to the reduced sale price essential to a short sale.