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Why would a lender accept a short sale?

Because the alternative is a foreclosure. Just as with the borrower, there are significant consequences to the lender if they foreclose.

After the foreclosure, the bank has two options: Sell it at the courthouse steps, or try to resell in the market. If they resell in the market, they are penalized by the government by freezing 3-10 times the loan amount so that the lender cannot lend those funds to another borrower.

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