Which statement best describes the difference between a short sale and foreclosure?

The statement accurately captures the fundamental distinction between a short sale and a foreclosure. In a short sale, the homeowner sells the property for less than the amount owed on the mortgage, which requires the lender's approval. This process is initiated by the homeowner, who is typically attempting to avoid foreclosure and mitigate the negative impact on their credit. The lender agrees to accept less than the full balance owed, allowing the sale to proceed.

Foreclosure, on the other hand, represents a legal process initiated by the lender when the homeowner fails to make mortgage payments. During foreclosure, the lender reclaim the property to recover the outstanding loan balance, usually through a public auction. This process can significantly damage the homeowner's credit score and leads to a loss of ownership without any gain from a sale of the property.

Understanding this distinction is important for homeowners in financial distress, as it informs their options for moving forward with their property and highlights the potential impacts on their financial future.