DEFINITION of 'Mortgage Short Sale'

The sale of a property by a financially distressed borrower for less than the outstanding mortgage balance due where the proceeds from the sale will be used to repay the lender. The lender then accepts the less-than-full repayment of the mortgage (and the borrower is released from the mortgage obligation) in order to avoid what would amount to larger losses for the lender if it were to foreclose on the mortgage.

BREAKING DOWN 'Mortgage Short Sale'

A mortgage short sale is one of several options other than foreclosure that might be available to a financially distressed borrower. Borrowers with temporary financial problems should try to negotiate a forbearance agreement with their lender. For borrowers with more lasting financial problems, in addition to a mortgage short sale, a deed in lieu of foreclosure or a short refinance might be potential options in avoiding foreclosure.

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