Short Sale
A sale of real property where the sale proceeds are less than the outstanding mortgage balance, requiring lender approval.
Full Definition
A short sale occurs when a homeowner sells their property for less than the amount owed on the mortgage, with the lender's approval. The lender agrees to accept the discounted payoff rather than proceed to foreclosure. Short sales require lender approval because the lender is taking a loss. The process is typically lengthy (3-6+ months) because the lender must review the seller's financial hardship documentation, order their own appraisal, and approve the purchase price. Short sales appear on the seller's credit report as a negative event but are generally less damaging than foreclosure. The seller may still face a deficiency judgment in some states if allowed by law.
Real-World Example
A homeowner owes $280,000 on their mortgage but the home is worth $230,000. They list the property as a short sale at $230,000, and the lender agrees to accept the reduced payoff rather than pursue foreclosure.
How Short Sale Appears on the Real Estate Exam
Common question types, tested concepts, and what to watch out for
Short sale requires the lender's written approval — the seller cannot accept an offer without it. Know that a deficiency judgment is the lender's right to pursue the seller for the remaining balance (some states prohibit this).
Related Terms
More Contracts & Transactions Terms
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