What is a short sale?

A short sale refers to a real estate transaction in which a property is sold for less than the amount owed on the mortgage. This situation typically occurs when a homeowner is facing financial distress and is unable to continue making mortgage payments, leading them to seek an alternative solution to foreclosure. By pursuing a short sale, the lender agrees to accept the proceeds from the sale as full payment of the mortgage debt, even though that amount falls short of the total owed.

Short sales can be beneficial for both sellers and lenders. For the seller, it can help avoid a foreclosure, which has more severe consequences for credit scores and future borrowing opportunities. For the lender, while they incur a loss, a short sale may be preferable to the lengthy and costly process of foreclosure.

In contrast, other options do not accurately describe a short sale. Selling a property for more than the mortgage owed is a normal sale, not a short sale. The concept of a loan that does not require title insurance does not relate to short sales or their structure. Similarly, refinancing pertains to taking a new mortgage to pay off an existing one rather than selling a property. Understanding these distinctions is essential for grasping the dynamics of real estate transactions and the mortgage industry.