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A short sale occurs when a seller is in a position where they owe more on their mortgage than the current market value of their property. This situation typically arises when the seller is experiencing financial difficulties, which often leads to them being in default on their mortgage. In a short sale, the lender agrees to accept a payoff that is less than the total amount owed on the loan, allowing the seller to sell the property and relieve themselves of the mortgage obligation.

It is important to note that while options such as being in foreclosure or having a buyer finance the purchase might relate indirectly to real estate transactions, they do not define the specific conditions under which a short sale takes place. Being current on a mortgage is also not a condition for a short sale, as this scenario usually involves a financial hardship. Thus, the correct understanding of a short sale is centered on the seller's default status and the agreement to accept a lower sales price than the owed mortgage amount.