What occurs in a short sale?

In a short sale, the lender agrees to accept a sales price that is lower than the amount owed on the mortgage. This typically happens when a homeowner is facing financial difficulties and is unable to continue making mortgage payments, but wants to avoid foreclosure. By allowing the property to be sold for less than the outstanding loan balance, the lender may mitigate losses and allow the homeowner to move on without the burden of unpaid debts. This process requires the lender's approval and usually involves negotiations to determine an acceptable price for the property, even if it falls short of covering the full loan amount.

Recognizing this, options suggesting that the borrower pays off the loan in full, that the property is auctioned to the highest bidder, or that the seller retains ownership do not accurately represent the process or outcome of a short sale. In short sales, the goal is to facilitate a sale in which the lender accepts a reduced payoff, not to maintain ownership or settle the debt in full through other means.