Short Sale Law and Legal Definition

A short sale in the context of real estate refers to when a lender agrees to release the lien that is secured to the property upon receipt of less money than is actually owed. A short sale may occur when the current owner is unable to meet the mortgage payments. By forgiving the balance of the debt, the lender may avoid the expenses and efforts involved in foreclosure.

In the context of investing, a short sale is any sale of a security that the seller does not own, or any sale that is consummated by the delivery of a security borrowed by, or for the account of, the seller. Investors who sell short predict that the price of the stock will fall, so that they can buy the stock at the lower price and make a profit.