In what situation would a short sale be likely to occur?

A short sale is likely to occur when the loan balance is greater than the property value. In this situation, the homeowner owes more on the mortgage than what the home is currently worth on the market. As a result, selling the property at its market value would not generate enough funds to pay off the existing mortgage.

Therefore, sellers typically seek a short sale to avoid foreclosure. This involves negotiating with the lender to accept a lower payoff than the owed amount, allowing the homeowner to sell the property and satisfy the loan obligation without going into foreclosure. This situation also often arises during market downturns when property values drop significantly.

The other scenarios described would not lead to a short sale. If the loan balance is less than the property value, for instance, selling the property would allow the homeowner to pay off the loan in full and potentially pocket the difference, making a short sale unnecessary. Similarly, if a loan has a non-recourse provision, the lender cannot pursue the borrower for a deficiency after a short sale or foreclosure, which would change the dynamics of a homeowner's decision-making process regarding a short sale. Lastly, if the total of all liens is less than the property's value, the homeowner could also sell and pay off those liens entirely, again