What is a "short sale" in real estate?

A "short sale" in real estate refers to a situation where a property is sold for less than the amount owed on the mortgage. This process typically requires approval from the lender because they are agreeing to accept a reduced payoff on the loan. In this scenario, the seller is usually facing financial difficulties, and the short sale can help them avoid foreclosure.

This definition accurately captures the essence of a short sale, as it directly involves the lender's consent and focuses on the transaction's financial aspect—specifically, that the sale proceeds are insufficient to cover the outstanding mortgage balance.

Understanding this concept is crucial for mortgage loan officers as they navigate transactions that may involve distressed properties. The other options don't align with the established definition: selling under market value or auctioning the property does not necessarily involve the lender’s approval, and a transfer without complications does not reflect the realities and legalities inherent in financial negotiations with lenders during a short sale.