Oregon 30-Hour Real Estate Law Practice Test

Which of the following best describes a “short sale”?

1. A sale that occurs after a property is foreclosed

2. A sale where the mortgage lender agrees to accept less than the amount owed on the mortgage

3. A sale in which buyers bid at an auction

4. A purchase that occurs within a short timeframe

The correct answer is: A sale where the mortgage lender agrees to accept less than the amount owed on the mortgage

A short sale is best described as a situation where the mortgage lender agrees to accept less than the total amount owed on the mortgage. This typically occurs when the homeowner is in financial distress and cannot keep up with mortgage payments, but wants to avoid foreclosure. In a short sale, the property is sold for a price less than the outstanding mortgage balance, and the lender accepts this lesser amount as full settlement of the debt, allowing the homeowner to walk away without owing additional money. This process benefits all parties involved — the homeowner avoids the detrimental effects of foreclosure, the lender mitigates potential losses, and the buyer may purchase a property at a lower price. Understanding this definition is crucial in recognizing the alternatives to foreclosure and the implications that arise in real estate transactions.