In a short sale, what does the lender agree to do?

In a short sale, the lender agrees to accept less than the total mortgage amount owed by the borrower. This situation typically arises when the homeowner is unable to continue making mortgage payments and the property’s market value has decreased, making it impossible to sell for the required loan payoff amount.

The lender evaluates the short sale request to determine whether accepting a lower amount is preferable to going through the foreclosure process, which can be more costly and time-consuming for the lender. By allowing the short sale, the lender can minimize potential losses and settle the debt more efficiently than if it pursued a foreclosure.

This approach helps both the homeowner and the lender: the homeowner can avoid a foreclosure record on their credit, while the lender can recover some of the outstanding debt without the complications and expenses surrounding foreclosure.