What is a defining feature of a short sale?

A short sale is characterized by the sale of a property where the sale proceeds are insufficient to cover the total amount owed on the mortgage. In this situation, the lender agrees to accept less than the total owed on the mortgage as a way to avoid foreclosure. This type of sale typically occurs when the homeowner is facing financial difficulties and cannot keep up with mortgage payments, yet the home is worth less than the remaining mortgage balance.

The lender must approve the short sale, and this process often involves negotiations regarding the sale price and terms. Because the lender ultimately needs to approve the transaction, it reflects a scenario where the seller is seeking relief from the burden of an underwater mortgage.

Understanding this context helps clarify why this choice accurately defines a short sale, distinct from situations where the seller may receive a higher selling price than owed or buyers are required to cover the shortfall.