What is the term used for the process of selling a property for less than what is owed on the mortgage?

The term that describes the process of selling a property for less than what is owed on the mortgage is known as a short sale. In a short sale, the lender agrees to accept less than the full amount owed on the mortgage, allowing the homeowner to sell the property despite its financial distress. This situation often arises when the homeowner is unable to continue making mortgage payments and wants to avoid foreclosure. The lender negotiates with the homeowner to facilitate a sale that can mitigate losses rather than going through the lengthy and costly foreclosure process.

In contrast, foreclosure refers to the legal process through which a lender takes possession of a property when the borrower fails to make mortgage payments. A trustee sale is typically a type of public auction where foreclosed properties are sold, while an equity sale usually refers to selling a property for more than what is owed, resulting in the seller receiving equity from the sale. Each of these terms highlights different scenarios in property transactions and financial distress situations.