- In a short sale, a seller facing potential foreclosure strikes a deal with their lender to accept less than they owe on the property, in exchange for avoiding foreclosure. It could hurt their credit, but not as bad as a foreclosure. The seller sells the home "short" of the balance they owe their lender, and the lender forgives the difference, but avoids the expense of foreclosing.
Strategic Default
- the process where a homeowner chooses proactively to let a lender foreclose on his home, not because he can't afford the payments, but because the amount owed is so much more than the home is worth that the home owner would never be able to recoup the cost. It raises all kinds of financial and ethical questions, and should not be approached lightly!