What does the term 'short sale' mean in real estate?

In real estate, the term 'short sale' specifically refers to a transaction where the sale price of the property is less than the outstanding balance of the mortgage. This typically occurs when a homeowner is facing financial difficulties and cannot continue to make mortgage payments, yet wants to avoid foreclosure. In a short sale, the lender must agree to accept a lower amount than what is owed on the mortgage, thereby allowing the seller to settle their debts and potentially avoid the more damaging process of foreclosure.

The lender's approval is essential as they are essentially taking a loss on the property, but they may see it as a better option than going through a lengthy foreclosure process. It's a way to enable a sale that can relieve the seller of their financial obligations while providing some return to the lender.

Other definitions associated with the choices do not accurately reflect the contractual and financial framework that defines a short sale. A discounted sale price for quick closure does not capture the essential characteristic of a short sale, which is the mortgage situation involved. Similarly, a specified short time period does not define a short sale, nor does a sale conducted under foreclosure conditions, as foreclosure represents a different legal process altogether in real estate transactions.