What type of sale involves the lender accepting less than the owed mortgage amount?

A short sale occurs when a lender agrees to accept a sale price for a property that is less than the amount still owed on the mortgage. This typically happens when a homeowner is unable to make their mortgage payments and is facing financial distress but wants to avoid the more severe consequences of foreclosure. In a short sale, the lender must approve the sale, understanding that they will incur a loss by accepting less than the mortgage balance.

This option is often explored when homeowners find themselves in situations where their property's market value has dropped below the remaining mortgage balance, providing a way for them to sell the home in such a circumstance. Short sales can benefit both parties; the seller avoids foreclosure, and the lender saves on the costs associated with foreclosure proceedings.

Understanding this type of transaction is essential in real estate, as it can offer a pathway for distressed homeowners while also presenting opportunities for buyers to purchase properties at reduced prices, often leading to negotiations that benefit all involved.