Florida Real Estate Broker ExaminationReal Estate Finance and InvestmentMedium
A Florida homeowner is facing financial hardship and is unable to make their mortgage payments. They want to avoid foreclosure and have negotiated with their lender to sell the property for less than the outstanding mortgage balance. Which of the following best describes this situation?
- AMortgage forbearance
- BShort sale
- CLoan modification
- DDeed in lieu of foreclosure
Show answer & explanationAnswer & explanation
Correct answer: B. Short sale
A short sale occurs when a homeowner sells their property for less than the amount owed on the mortgage, with the lender's approval, to avoid foreclosure. The lender agrees to accept the sale proceeds as full or partial satisfaction of the debt.
Why the other options are wrong
- A. Mortgage forbearance is a temporary postponement or reduction of mortgage payments, not a sale of the property.
- C. A loan modification involves changing the terms of the existing mortgage, such as interest rate or loan term, to make payments more affordable, not a sale.
- D. A deed in lieu of foreclosure is when the homeowner voluntarily transfers the deed to the lender to avoid foreclosure, without a sale to a third party.
Short Sale
A real estate transaction where the lender agrees to allow the property to be sold for less than the outstanding mortgage balance, typically to avoid foreclosure.
- Requires lender approval.
- Seller avoids foreclosure, but may still owe a deficiency.
- Can affect the seller's credit score.
Memory trick: Short on cash? Sell it short to avoid the full foreclosure storm.