Which option allows the borrower to avoid foreclosure by disposing of a property for an amount less than the outstanding mortgage balance?

A short sale is a process that allows a borrower to sell their property for less than the amount owed on the mortgage, with the lender's consent. This option is beneficial for borrowers who are struggling to make their mortgage payments and want to avoid foreclosure, which can severely damage their credit and lead to other long-term financial consequences.

In a short sale, the lender agrees to accept the proceeds from the sale as full satisfaction of the debt, thereby releasing the borrower from their mortgage obligations. It can be a way for distressed homeowners to transition out of an unsustainable financial situation while minimizing the negative impacts on their credit score compared to a foreclosure.

This option generally requires the approval of the lender, who will evaluate the borrower's financial hardship and the market conditions affecting the property. Once approved, the borrower can work with a real estate agent to proceed with selling the property, potentially allowing them to exit their financial difficulties while limiting losses for both the borrower and the lender.