What defines a "short sale" in real estate?

A "short sale" in real estate occurs when a property is sold for less than the total amount owed on the mortgage. This situation arises typically when the homeowner is facing financial difficulties and cannot continue to make mortgage payments, leading them to seek a way to sell the property without going through the foreclosure process. In a short sale, the lender agrees to accept less than the full amount owed on the mortgage, allowing the sale to take place despite the outstanding debt.

The main concept here is that the sale price is insufficient to cover the existing mortgage loan, leading to a necessity for negotiation with the lender to accept the sale proceeds as full payment. This can be an alternative to a foreclosure, which is often a more complicated and lengthy process that can impact the homeowner's credit significantly. The short sale provides a way for the homeowner to reduce their financial burden while still allowing the property to be sold.