What defines a "short sale" in real estate?

A "short sale" in real estate refers specifically to a situation where the sale of a property generates proceeds that are less than the balance owed on the mortgage. This typically occurs when the homeowner is in financial distress and cannot make the mortgage payments, prompting them to sell the property for less than the outstanding mortgage amount.

In a short sale, the lender must agree to accept less than what is owed on the mortgage, which allows the homeowner to avoid foreclosure. This differs from other types of sales, which do not involve any financial distress regarding the mortgage balance. Long-term implications for the seller can include a negative impact on their credit report, but it is often preferable to foreclosure for all parties involved. Understanding this definition is crucial for professionals in real estate to assist clients effectively in navigating their financial options.