Florida Real Estate Broker ExaminationReal Estate Finance and InvestmentEasy
A Florida homeowner is struggling to make mortgage payments and is facing foreclosure. The lender has offered an alternative that allows the homeowner to sell the property for less than the outstanding mortgage balance, with the lender agreeing to accept the proceeds as full satisfaction of the debt. What is this process called?
- ADeed in lieu of foreclosure
- BLoan modification
- CShort sale
- DRecasting
Show answer & explanationAnswer & explanation
Correct answer: C. Short sale
A short sale occurs when a lender agrees to allow a borrower to sell a property for less than the outstanding loan balance, accepting the proceeds as full satisfaction of the debt to avoid foreclosure.
Why the other options are wrong
- A. A deed in lieu of foreclosure is when the borrower voluntarily transfers ownership to the lender, not a sale to a third party.
- B. A loan modification changes the terms of the existing loan to make payments more affordable, not a sale.
- D. Recasting involves re-amortizing a loan, typically after a large principal payment, without changing the interest rate or term.
Short Sale
A short sale is a transaction where a lender agrees to allow a borrower to sell their property for less than the amount owed on the mortgage, accepting the sale proceeds as full satisfaction of the debt.
- Requires lender approval.
- Often used to avoid foreclosure.
- Can negatively impact the borrower's credit.
Memory trick: Selling 'Short' is better than losing it all.