In real estate, what is a "Short Sale"?

A short sale in real estate refers to the transaction of selling a property for less than the amount owed on the mortgage, and it requires the approval of the lender. This situation typically arises when the homeowner is facing financial difficulties and can no longer keep up with mortgage payments. To facilitate the sale, the lender must agree to accept a lower payoff than what is due, thereby allowing the property to be sold at a market value that is less than the outstanding mortgage balance.

This process is critical because the lender is essentially agreeing to forgive a portion of the debt, and this requires their consent. Short sales can be an alternative to foreclosure, providing a way for homeowners to avoid the trauma and credit damage associated with foreclosure while allowing lenders to recover at least a portion of the loan amount without having to undertake the lengthy and costly foreclosure process. Thus, understanding the specifics of a short sale is essential for anyone involved in real estate transactions, as it impacts both the buyer's and the seller's positions in the market.