This kind of sale usually takes place when the borrower is in financial difficulty and unable to pay one or more mortgage payments. This usually follows through the foreclosure process.
This is even more likely to happen when the housing market is down. This is what happened in the financial crisis of 2007-2009, causing house prices to drop and sales to slow in various regions.
To buy a property in this kind of sale, the lender must approve it first. When a homeowner sells a house the bank receives the entire balance amount from the sale proceedings.
However, in such transactions, the lender does not recover the full amount because the house sold for less than what the seller owed to the bank. Therefore, the original lender or the bank must approve the sale.
The seller should be able to show that this is the only option. The seller must show some sort of financial difficulty.
Lenders will agree to this if the borrower can prove that they can no longer repay the mortgage and it will default, especially if the lender or the bank wants to avoid going through a foreclosure process.
The price of the house must correspond to its market value. Often, such sales occur because the market is shaken and house prices fall as a result.
The price paid by the buyer should usually be at the current market price for that property.
Finally, if your home is listed for less than your mortgage, you must first disclose it. Potential buyers should be aware that since the sale price of the house is lower than the mortgage, they are responsible for negotiating with the seller and with the lender.