What term describes an arrangement where a lender agrees to accept less than the total owed by the borrower?

The correct term for an arrangement where a lender agrees to accept less than the total owed by the borrower is a short sale. In a short sale, the borrower sells the property for less than the amount owed on the mortgage, and the lender agrees to accept that lesser amount as full satisfaction of the debt. This typically occurs in situations where the borrower is facing financial hardship and wishes to avoid foreclosure.

In contrast, forbearance is an agreement between the lender and borrower to temporarily suspend or reduce mortgage payments, usually during a period of financial difficulty. Loan modification involves changing the terms of the loan to make it more manageable for the borrower, which could include lowering the interest rate or extending the loan term. Debt settlement refers to negotiations to reduce the total amount of debt owed, usually involving a lump-sum payment to settle the debt but does not specifically pertain to property transactions like a short sale does.