What is a "short sale"?

A "short sale" refers to a transaction where a property is sold for less than the total amount owed on the mortgage, but it requires the approval of the lender. This typically occurs when the homeowner is facing financial difficulties and cannot continue to make mortgage payments. The lender must agree to accept the reduced amount as full settlement of the mortgage debt since they would otherwise incur a loss if the property were to be foreclosed.

In such scenarios, the homeowner's financial situation is often assessed, and the lender is tasked with determining if accepting the short sale aligns with their financial interests and reduces potential losses. This arrangement can be beneficial for the homeowner, as it allows them to avoid foreclosure and reduce the negative impact on their credit score, while also providing the lender a chance to recoup some funds instead of going through a lengthy foreclosure process.

The other options do not accurately define a short sale. For instance, not all sales of property without lender approval or that yield a profit for the seller can be classified as a short sale; these would be more standard transactions. Similarly, a property sold above market value doesn't correspond with the definition of a short sale, which inherently involves selling at a loss.