This situation most frequently occurs when the market values of real estate depreciate, especially when the subject property was highly leveraged to begin with. When the mortgage balance exceeds the value of the property, lending institutions can agree to accept less than the outstanding mortgage balance as payment in full. Even though the property still legally belongs to the delinquent homeowner, the lender is required to be included in and agree to all the sales negotiations. The lender has good reason to work with the owner in this circumstance because accepting the lower offer may cost the lender initially, but it may save them many thousands in the long run if the property is in jeopardy of becoming a non-performing asset for them. A homeowner would need to contact their lending institutions loss mitigation department for more information on their particular situation.
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