What is a "short sale" in real estate?

A "short sale" in real estate refers to a sale of a property where the sale price is less than the amount owed on the mortgage. This situation occurs when the homeowner is facing financial difficulties and cannot continue to make mortgage payments, but the lender is willing to accept a reduced payoff to avoid the costs associated with foreclosure.

For a short sale to go forward, the lender must approve the transaction, as they are effectively agreeing to accept less money than what is owed. This process can be lengthy and complex, as it often requires the seller to provide documentation regarding their financial hardship and the lender to agree on the sale price. Therefore, the involvement of lender approval is a critical component that classifies it as a "short sale."

This context clarifies why recognizing the specific criteria and requirements defining a short sale is key for understanding its role in real estate transactions.