Courtesy of Rocket Mortgage
A short sale occurs when a homeowner in financial troubles sells their home for less than they owe on the mortgage. The lender of the original mortgage gets all of the proceeds of the sale. Then the lender, either forgives the difference or gets a deficiency judgment, which requires the original borrower to pay what’s left over.
Although this seems like a less-than-ideal arrangement for the lender, it’s often a preferable alternative to foreclosure. A short sale is a way for a homeowner and their lender to get out of a difficult financial situation by taking a loss.