What is a short sale in real estate?

A short sale in real estate refers to a specific type of transaction where a property is sold for an amount that is less than the amount owed on the mortgage, and this sale is done with the approval of the lender. This situation typically arises when a homeowner can no longer afford their mortgage payments and is facing foreclosure, but wishes to avoid the more damaging process of a foreclosure.

In a short sale, the lender agrees to accept a lower payoff amount than what is due on the loan, allowing the seller to sell the property to a buyer and use the proceeds to partially satisfy the mortgage debt. The lender's approval is crucial because they are agreeing to finance the transaction despite being at a loss. This process helps protect the borrower's credit score compared to a foreclosure, and it allows the lender to minimize their losses by facilitating a sale rather than going through the lengthy and costly foreclosure process.

Other options describe different scenarios that do not align with the concept of short sales. Transactions at full market value and private sales between friends and family do not involve the lender's approval or the dynamics of financial distress encapsulated in a short sale. A type of auction sale for troubled properties might involve distressed assets but does not specifically signify the seller's financial situation relative to