What characterizes a 'short sale'?

A 'short sale' is characterized by the sale of a property for less than the amount owed on the mortgage. This situation typically arises when a homeowner is unable to continue making mortgage payments and seeks to sell the property, but the market value has declined, leaving them with a mortgage balance that exceeds the selling price.

In these cases, the lender must agree to accept a reduced payoff amount to allow the sale to proceed, as the proceeds from the sale will not cover the total debt owed. Short sales can help buyers capitalize on lower property prices, while also offering sellers a way to avoid foreclosure and mitigate financial distress.

This distinction is crucial because it underscores the complexities involved in short sales, such as the necessity of lender approval, which distinguishes it from traditional sales where the property is sold for more than or equal to the outstanding mortgage balance.