A: In a short sale, the lender accepts a discounted payoff because proceeds from the sale of the home do not fully cover the value of an existing loan. Although the lender may be left with a loss, many are willing to work with borrowers and accept a discounted payoff on a mortgage.
From a lender’s perspective, short sales limit the time and costly paperwork associated with the foreclosure process. From the borrower’s perspective, although you will lose any equity in the home, the lender covers virtually all sales costs including commissions, escrow and title fees, and repair costs. Your loan is paid off, the damage to your credit rating may be less than that of a completed foreclosure and you are able to move on more quickly.