What is the term for the process where a lender agrees to accept less than the loan balance upon the sale of a property?

The process in which a lender agrees to accept less than the full loan balance upon the sale of a property is known as a short sale. In a short sale scenario, the homeowner sells the property for less than what is owed on the mortgage, and the lender must approve this arrangement because it typically allows the homeowner to avoid foreclosure.

Short sales often occur when the homeowner is facing financial difficulties and cannot keep up with mortgage payments. By accepting a reduced amount, the lender can recover some of the loan balance instead of incurring greater losses through the foreclosure process. This makes it a preferred option for both buyers and sellers in certain situations.

In contrast to a short sale, foreclosure is a legal process in which the lender takes possession of the property after the borrower has defaulted on the mortgage. Refinancing refers to the process of replacing an existing loan with a new one, often to secure a lower interest rate or to change the loan terms. Loan modification involves altering the original terms of a loan to make the monthly payments more manageable, but does not imply a sale of the property at a reduced value.