What is the purpose of a short sale in real estate?

The purpose of a short sale in real estate is to sell a property at a loss relative to the mortgage balance. This typically occurs when the homeowner is unable to meet their mortgage obligations and is trying to avoid foreclosure. In a short sale, the lender agrees to accept a sale price that is less than the total amount owed on the mortgage. This arrangement helps the homeowner mitigate financial loss and allows them to move on from the property without facing the long-term consequences of a foreclosure. By allowing the sale to proceed at a lower price, the lender can recover some funds that would otherwise be lost entirely in a foreclosure scenario, making it a mutually beneficial solution.

In contrast, settling a property's mortgage for more than its market value does not align with the concept of a short sale, as the objective lies in realizing a sale price lower than what is owed. Similarly, expediting the foreclosure process does not accurately describe a short sale's purpose—rather, it is an effort to avoid foreclosure altogether. Finally, attempting to increase the market price of a distressed property is also inconsistent with the nature of a short sale, where the focus is primarily on liquidating the asset quickly in a challenging financial position, rather than enhancing its value.