With the downturn in the economy many people have been forced into foreclosure. Not only does this leave them without a house, but it also deteriorates their credit. However, for some who get behind on their mortgage payments there is another option. If a homeowner owes more on their house than it could sell for in the current real estate market they may be eligible to complete a short sale. A short sale essentially allows the homeowner to sell their house for whatever it is worth in the current market regardless of what they owe on the property. Depending on the bank and how negotiations are executed, the homeowner can be forgiven the deficiency on the sale of the home and walk away debt free. Different types of loans have different short sale requirements which can make them easier or more difficult to complete.

Here is how it works. A short sale occurs when a bank (who holds the mortgage on a property) agrees to take a loss or “short” on the amount owed them on the mortgage. Regardless of what is owed on the property, the bank will only be able to sell the house at market value after foreclosure. Therefore it is beneficial for them to have the house sold sooner rather than later. With a short sale the bank does not have to go through the expense of all the legal filing associated with foreclosure or the time and cost involved in holding a property until it sells. Instead, an offer is submitted before the foreclosure is completed, and the property goes directly from the current homeowner to the new homeowner without becoming bank owned property. Some types of loans even allow sellers to walk away from closing with some cash. Often government loans and government backed loans allow the seller $1000 and $3000 once a short sale has been complete.

The best way to complete a short sale is by going through a real estate agent or a company who specializes in short sales. Be cautious of anyone who charges for their services. Companies or realtors should not charge for their services because they will make their money when the house sells (through commission or through buying the house, fixing it up as needed, and selling it).

While short sales are not for everyone, they are a great option for those who have fallen behind on their mortgage payments, and owe more on their property than it is worth. A short sale allows the homeowner to avoid foreclosure, reduce or get rid of their house debt, and sometimes even walk away with cash at closing.