What does the term “short sale” entail?

The term "short sale" specifically refers to the scenario where a property is sold for less than the amount owed on its mortgage, and this sale occurs with the lender's consent. In this situation, the lender agrees to accept a reduced payoff to facilitate the sale, which can help the homeowner avoid the more severe consequences of foreclosure.

Short sales often arise when a homeowner is facing financial difficulty and can no longer keep up with mortgage payments. By agreeing to a short sale, the lender may mitigate losses by allowing the property to be sold rather than going through the lengthy and costly foreclosure process. This agreement is crucial since it ensures that all parties are on the same page about the terms and conditions surrounding the sale and the outstanding debt.

The other choices do not accurately capture the nature of a short sale. Selling a property for exactly the mortgage balance or more than the mortgage balance does not involve the lender's approval of a reduced sale amount, while an auction process for distressed properties typically implies a different strategy and does not reflect the agreed-upon nature of a short sale.