WHAT IS IT: It is an out-of-court agreement between a debtor and a creditor (the bank) that allows the mortgage debt to be settled by paying a specific sum of money, thereby preventing the property from being foreclosed upon and ending up at auction.

BENEFIT FOR THE DEBTOR:

• pay off the debt
• avoid the auction
• improve one's credit standing

HOW IT WORKS: Once an agreement is reached, a new buyer purchases the property. The proceeds are used to pay off the debt, thereby clearing the debtor’s outstanding balance.