Which statement best describes a short sale?

A short sale is characterized as a transaction requiring lender approval. This situation arises when a homeowner sells their property for less than the amount owed on the mortgage. Because the lender will be taking a loss on the loan, their approval is essential for the sale to proceed. The lender needs to agree to accept a reduced payoff, which typically is determined through a negotiation process where the homeowner provides evidence of financial hardship—demonstrating that they cannot afford to continue making mortgage payments.

In this context, it's essential to understand how this relates to the overarching aim of the transaction, which is often to help the homeowner avoid foreclosure. The other options do not accurately capture the essence of a short sale; for instance, a sale above mortgage value does not involve a short sale scenario, nor does a short sale inherently eliminate homeowner's debt—there may still be residual debts involved based on the terms negotiated with the lender. Additionally, a sale that has no mortgage obligations does not align with the definition of a short sale, as existing mortgage obligations are central to the transaction.