What is a short sale?

A short sale occurs when a homeowner sells their property for less than the amount owed on their mortgage. In this scenario, the lender agrees to accept a reduced payoff to release the lien on the property. This usually happens when the homeowner is struggling financially and cannot continue making mortgage payments, and the property's market value has declined.

When the property is sold in a short sale, the lender incurs a loss since they are receiving less than the total amount owed on the mortgage. This option accurately reflects the essence of a short sale, as it summarizes the situation where the sale proceeds do not cover the full mortgage balance, allowing the lender to recoup part of their investment rather than facing potential foreclosure.

In contrast, other options focus on different aspects of real estate sales that don't accurately define what a short sale is. For example, the option stating that it is a sale where the property is sold for profit does not apply, as short sales typically occur when the market value is lower than the mortgage balance. Also, a sale resulting in proceeds that meet the mortgage balance or a sale where the property is not owned by the seller do not align with the characteristics of a short sale, further distinguishing the correct answer.