What does it mean when the lender says it is initiating a short sale?

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pohnpei397 eNotes educator| Certified Educator

Since you tagged this question with “real estate,” I will answer it in that context.  Please be aware that there is a very different meaning of “short sale” or “selling short” with regard to the buying and selling of stocks on the stock market.

In real estate terms, a short sale occurs when a property is sold for less than the owner owes on that property.  For example, if you have a home on which you owe $150,000, but you can only sell it for $100,000, that is a short sale.  This sort of sale has become much more prevalent since the real estate bubble popped in 2008.  Before then, housing prices had been greatly inflated and so people had very large mortgages.  After the crash, home values plummeted and so there were many people who owed more than their home could now be sold for.  This resulted in a number of short sales.

A short sale can be seen as an alternative to foreclosing on a mortgage.  Typically, the lender and the borrower have to come to an agreement as to whether the borrower will still have to pay the rest of the mortgage.