In real estate, a short sale occurs when a financially challenged homeowner sells their property for less than the amount owed on the mortgage. The property is purchased by a third party (not the bank), and all revenues go to the lender. The lender has two options: forgive the outstanding sum or pursue the homeowner with a deficiency judgment, which forces them to pay the lender all or part of the difference. This disparity must be legally forgiven in several areas during a short sale.