A short sale is a transaction in which the lender, or lenders, agree to accept less than the mortgage amount owed by the current homeowner. The difference is generally forgiven by the lender, and in some cases the homeowner may have to make arrangements with the lender to settle the remainder of the debt.

The short sale process generally costs the lender less versus processing a foreclosure, which can be a viable way for a lender to minimize losses.

Homeowners who are “upside down” on their mortgage(s) can also find this to be their best option because a short sale may not hurt their credit history as much as a foreclosure. This means that a homeowner may be able to qualify for another mortgage sooner as they get back on their feet financially.