What is a short sale?

A short sale is a transaction in which a property is sold for less than the amount still owed on the mortgage, and the lender agrees to accept that lower price as settlement of the debt. This typically occurs when the homeowner is facing financial difficulties and cannot continue making mortgage payments, but the property has not yet gone into foreclosure. In a short sale, the lender evaluates the situation and decides that accepting a lower payoff is preferable to taking on the costs and legal complications associated with foreclosure.

The process involves negotiations between the seller, the potential buyer, and the lender, who has to agree to the terms of the sale. This often can be a lengthy process because the bank must approve the sale and confirm that it is a feasible solution for both the seller and the institution.

This option accurately describes the unique scenario of a short sale, demonstrating its reliance on lender approval for a transaction that resolves the seller’s financial burden while avoiding the more drastic step of foreclosure. The other options do not correctly depict a short sale; they describe actions related to auctions or foreclosures which occur in different contexts of property sales.