Credit Repair

The Cost

If you owe more than your house is worth and can't afford your payments, you might be able to sell it for less than you owe -- without having to pay the lender the difference.

If you can no longer make your mortgage payments and your home is now worth less than you owe on it, foreclosure may not be your only option.

A short sale, in real-estate terms, is a sale of a house in which the sale price is less than what the owner still owes on the mortgage. It is a procedure sometimes agreed to by lenders, who often would rather take a small loss than go through the lengthy and costly foreclosure process, in which the lender allows the sale of a home for less than it is worth and forgives the rest of the note.

While there are some significant negative consequences to a short sale, an ever-increasing number of properties are being advertised with that label.

Win Win Situation

The beauty of short sales is that they can be a win-win-win situation for seller, buyer and lender.

Here's how:
The seller gets out of the mortgage liability without facing bankruptcy.
The buyer gets the home at a reduced price.

The lender agrees to a loss it considers minimal without going through a foreclosure and being saddled with a property that cannot sell.
While it may seem surprising that lenders would agree to accept less than what they are owed, they benefit from the process, too.

"The lender benefits by not having to go through the protracted process of foreclosing on the borrower and then having to put the property on the market and go through the whole marketing process," says Stuart Wilson, a real-estate agent with Paragon Real Estate in San Francisco.