Hawaii Pre-Licensing National Practice Exam 2025 – Your Complete Prep Guide

A short sale refers to the situation where a property is sold for less than the amount owed on the mortgage, and this transaction requires approval from the lender. In a short sale, the homeowner is typically facing financial hardship and is unable to keep up with mortgage payments. By selling the property for less than the mortgage amount, the homeowner seeks to avoid foreclosure.

The lender agrees to the short sale because it represents an opportunity for them to recoup a portion of the outstanding loan amount, which is usually preferable to the lengthy and costly process of foreclosure. In these cases, the sale proceeds go directly to the lender to mitigate their losses on the mortgage.

The other choices do not accurately represent a short sale. Selling a property for more than the amount owed on the mortgage describes a traditional sale. Foreclosing on a property is a legal process initiated by the lender to recover the owed amount, whereas a short sale is a cooperative sale between the owner and the lender. Transferring ownership without a sale does not involve the financial dynamics of a mortgage and would not constitute a short sale either.