Erin and Dooley, a married couple, borrow $120,000 from Capital & Credit Bank to buy a home. When Erin and Dooley divorce, they are unable to make payments on the mortgage. The market value of the home has declined to less than the balance of the loan. Capital & Credit agrees to a sale of the property for this amount. This is

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This situation is a short sale, which is when the lender agrees to accept less than the full amount owed on a mortgage in order to avoid foreclosure on the property. The fact that the market value of the home has declined means that the sale price is less than the outstanding balance of the loan. A prepayment penalty is a fee charged for paying off a loan early, forbearance is when a lender agrees to temporarily suspend or reduce payments, and foreclosure is the legal process by which the lender takes possession of the property in order to recover the outstanding balance of the loan.

Erin and Dooley, a Married Couple, Borrow $120,000 from Capital