What is a short sale?

A short sale refers to a situation in which the lender agrees to accept a reduced sale price for a property that is worth less than the amount the borrower owes on the mortgage. This scenario typically arises when homeowners face financial difficulties and cannot continue making mortgage payments. By approving a short sale, the lender allows the property to be sold at a price that is lower than the mortgage balance, thereby enabling the seller to avoid foreclosure.

In a short sale, the lender evaluates the homeowner's financial situation and agrees to the sale as a way to limit their losses, which is often beneficial for both parties involved. The homeowner can exit the burden of the mortgage, while the lender recoups at least a portion of the outstanding loan amount without going through a lengthy foreclosure process.

Understanding the context surrounding a short sale elucidates why the other choices are not correct. For instance, a sale at a higher price than the market value is counter to the principle of a short sale, as it involves selling the property for less than what is owed. Similarly, while the sale of a foreclosed property involves the lender taking possession after a borrower defaults, it is not a short sale. Lastly, a guarantee of profit for the seller is not applicable in a short sale scenario,