A short sale is a real estate transaction generally used to stop foreclosure, by which homeowners can sell their home for less money than they actually owe on the mortgage(s). This is done with the understanding that the net proceeds from the sale may be less than the total amount due to a loan servicer or lender. This is accomplished by providing proper documentation to the lender(s) that they must consider in the process of reducing the mortgage balance to allow the sale.
If the sale is approved, the mortgage lender(s) will actually take a loss on the mortgage and the borrower can move into more affordable housing.
If a bank approves the discount of a mortgage (short sale), the home can be sold for a price lower than the amount owed without the seller having to come up with funds to cover the shortfall. Thus, the mortgage is satisfied. More and more lenders are developing short sale programs to better serve sellers, in order to avoid foreclosure.