What is a short sale?

A short sale is a sale of real property in which the proceeds fall short of the total owed on the claims secured against it. The word describes the arithmetic and nothing else: what the sale produces, after the ordinary costs of settlement, is less than the sum the lienholders would have to be paid to release their claims voluntarily.

That gap is what makes the transaction a category of its own. In an ordinary sale the settlement agent pays each holder its stated payoff and records the releases, and no holder has to agree to anything, because everyone is paid in full. Where the money does not reach, that mechanism stops working, and the sale can only close if a holder consents to release its claim for less than the balance it is owed.

So a short sale is defined by a consent rather than by a price. It is an ordinary purchase contract between an owner and a buyer, plus the separate agreement of one or more lienholders — parties who are not selling anything and are not obliged to participate — to accept less than their contract entitles them to and record a release anyway.

A lien attaches to the property, not to the person who owes the debt. A deed can be signed and delivered while every claim recorded against the parcel stays exactly where it was, which is why a sale that leaves a lien in place transfers a property nobody wants and no title company will insure. The release is the point of the exercise.

That is the difference between the owner's decision and the outcome. An owner and a buyer can agree on everything — price, timing, condition, deposit — and the transaction still cannot close, because the party whose signature is needed is a third one that has agreed to nothing. A signed contract in a short sale is the beginning of a review, not the end of a negotiation.

Where more than one claim is recorded, each holder decides separately, and the junior positions are the harder ones: a holder facing extinction in another proceeding has a different calculation from one that expects to be paid in full. Any single holder declining is enough to stop the transaction, and none of them owes anyone an explanation.

Review is document-driven. The holder receives a package assembled by the owner or their representative — an executed contract, a settlement statement showing what each party would receive, and financial documentation supporting the shortfall — and evaluates it against its own internal criteria and whatever the loan's investor or insurer requires of it. The property is normally valued independently by or for the holder as part of that review.

An approval, if one is given, arrives as a letter with conditions attached. Those conditions can address the sale price, the closing date, which costs may be paid from the proceeds, whether the shortfall is forgiven or remains owed, and who may buy — arm's-length requirements between the parties are standard. A letter that expires is a common outcome, and expiry sends the file back through review.

The timing is set by the reviewing institution and by the number of holders involved, which is why the length of a short sale is not something the buyer or the owner controls. Nothing about the process is uniform between institutions, and nothing on this page states how long any of it takes, because no honest general figure exists.

A short sale is a sale by the owner. The owner still holds title, signs the deed and delivers it to the buyer at settlement; what is unusual is only that a lienholder has agreed to release its claim for less than the balance so that the deed can be delivered clear.

A foreclosure is a proceeding brought by a lienholder to enforce its lien and have the property sold, conducted by a court or a trustee under state law. The owner is a party to it rather than the seller, and the sale is conducted under the rules of the proceeding rather than by contract between two parties.

REO — real estate owned — describes a property after such a proceeding has ended with the lienholder itself as the owner. An REO sale is an ordinary sale by an institution that holds title. The three terms describe three different sellers, and using them interchangeably produces confusion in county records, in listing data and in conversation.

It is not a short transaction. The word refers to the proceeds falling short of the debt and has nothing to do with time, and the review adds a party and a decision that an ordinary sale does not have. A reader who takes the name at face value takes it backwards.

It is not a price position either. A short sale says that the proceeds are less than what is secured against the property, which is a fact about the debt, not about the property or about any market. Two identical houses can be a short sale and an ordinary sale depending on nothing except how much is owed on each.

And an approval is not a given. The holder is exercising a commercial judgement about its own position and can decline, counter, or attach conditions the parties will not accept, so a contract on a short sale is a contract subject to somebody else's decision until that decision is made in writing.