The term “short sale” refers to a specific type of pre-foreclosure transaction in which the owner of the property sells the property to a third party for an amount that is insufficient to pay off all of the entities having a lien on title to the property.
In a short sale, the owner negotiates with some or all of the various lien holders to accept less than the full amount they are owed in exchange for a release of the lien. Short sales are often confused with Real Estate Owned (REO) sales which are post-foreclosure sales and involve the lender as owner of the property.
A short sale in real estate occurs when the outstanding obligations (loans) against a property are greater than what the property can be sold for. Short sales are a way for homeowners to avoid foreclosure on their homes and still be able to pay off their loan by settling with lender.