With a short sale, the lender accepts an amount that is lower than what is owed on the home. The homeowner sells the home for the amount that is agreed upon by the lender. When the home is sold, the borrower then has to give the money from the home sale to the lending company. This takes care of the mortgage loan, in most cases. Sometimes there are cases where the home does not sell for the amount that the lender agrees to, and the borrower is responsible for paying the difference.

In many cases, short sale is a better option to settle for than foreclosure. With a short sale, the lenders control the amount of discount from the mortgage and receive payment. With a foreclosure, they cannot receive any additional payments because the ownership of the home gets reverted to the lender. There may be additional costs associated with property repair and upkeep until sale, listing costs, and real estate agent fees.

For the homeowner, a short sale is so much better than a foreclosure. For instance, borrower’s credit history does not show any negative foreclosure. Also, with a short sale, the borrower has the ability to control what debt will remain, if any, when the home is sold off.