Final answer:
The action of selling a property for less than the unpaid balance of the note is known as a short sale. It requires lender's approval and is distinct from foreclosure and deed in lieu of foreclosure. Examples given of property value increases and loan attractiveness do not represent a short sale situation.
Step-by-step explanation:
The action described in the student's question, where the beneficiary of a second trust deed sells his interest in the property for a lesser amount than the current unpaid balance of the note, is most commonly described as a short sale. In a short sale, a property is sold for less than the amount owed on the mortgage, with the lender's permission.
This is different from a foreclosure, where the lender takes possession of the property due to non-payment of the mortgage, and a deed in lieu of foreclosure, where the borrower voluntarily transfers the property to the lender to satisfy the loan and avoid foreclosure.
For example, Freda's situation, where she can sell the house at a higher value than she bought it for, does not reflect a short sale. Ben's case also does not illustrate a short sale since the value of his property increased and he has equity in the property. The situation where a borrower is late on loan payments or if interest rates have risen, as previously mentioned, may affect the desirability of purchasing a loan but those scenarios do not constitute a short sale.