Which type of sale occurs when a homeowner sells their property for less than the amount owed on their mortgage?

A short sale occurs when a homeowner sells their property for an amount that is less than what they owe on their mortgage, and typically, this process requires the approval of the lender. This situation often arises when the homeowner is facing financial difficulties and cannot keep up with mortgage payments, leading them to seek a sale that mitigates further loss. In a short sale, the lender agrees to accept the lower sale price rather than going through the lengthy and expensive process of foreclosure.

Short sales can benefit both the homeowner and the lender under certain circumstances: the homeowner avoids foreclosure, which can severely impact their credit score, and the lender may recover a portion of the amount owed rather than losing everything through a foreclosure process. This distinguishes it clearly from other types of sales such as regular sales, where the homeowner sells for a price above their mortgage balance, or post-foreclosure sales, which occur after the property has already been repossessed by the lender. Distressed sales is a broader category that may include short sales but doesn't specifically address the sale terms relative to the mortgage balance.