What defines a short sale in real estate?

A short sale in real estate is specifically characterized as a sale of a property where the proceeds from the sale are less than the balance owed on the mortgage. This situation typically arises when a homeowner is facing financial difficulties and cannot afford to keep the property, leading to a scenario where the lender may agree to accept less than the total amount owed to facilitate the sale.

In this context, the lender must approve the short sale, acknowledging that accepting a lesser amount is preferable to undergoing a more costly and lengthy foreclosure process. Therefore, the correct definition revolves around the financial arrangement in which the selling price is insufficient to cover the existing mortgage debt.

Other options describe different scenarios that do not align with the criteria for a short sale. For instance, selling a property for more than the mortgage balance defines a typical sale with equity. Foreclosure involves a legal process initiated by the lender due to a borrower's default, which is separate from the voluntary decision to proceed with a short sale. Lastly, a quick sale to recover costs does not necessarily imply that the sale amount is below the mortgage balance, thus not aligning with the core definition of a short sale.