How does a short sale differ from a foreclosure?

A short sale is a real estate transaction that occurs when a homeowner sells their property for less than the amount owed on their mortgage, and the lender agrees to accept this reduced payoff. For a short sale to proceed, the bank must approve the sale since they are agreeing to take a loss on the mortgage loan. This ensures that the transaction is legally recognized and protects the interests of all parties involved, including both the seller and the lender.

In contrast, a foreclosure is a legal process initiated by the lender when a borrower defaults on their mortgage payments. During foreclosure, the lender takes possession of the property and sells it to recover the owed debt, typically through an auction. Because foreclosure is a result of the homeowner's default, it does not require the homeowner's approval, and the lender acts based on their rights as secured creditors.

The key distinction lies in the necessity of bank approval for a short sale and the lack of homeowner agreement in foreclosure. While a real estate agent might be involved in both scenarios, the nature of the transactions and their initiation differ significantly.