The laws vary state by state, but the general process is the same pretty much everywhere.



The lender will stop accepting payments from you until and unless you can bring your loan completely current. That means paying off all late payments, fees, and penalties needed to bring your loan current.

It may be so hard for you to bring your loan current and you may feel you can't afford the payments anyway.

So you may decide to sell.

But then the truth hits you. What if you owe more than your home is worth? Say your loan is $300,000, and your property is only worth $250,000?

If you try to sell the house, you either must bring $50,000 to the closing, or else your lender must agree to a "short sale". A short sale means you find a buyer and at the settlement, the buyer pays and the lender accepts the buyer's payment as payment in full.

You are released from any further liability.

The truth about real estate short sales

If you do a short sale, your lender will usually report your mortgage on your credit as PAID - SETTLED or some such notation. Note that if you have been late, the lates will show up just the same.

This is far better than a foreclosure on your credit report. It means you can qualify for a new home loan fairly soon. It is not that big of a ding.

A short sale is a great way to get out from under. Note a few things that people don't understand.

One, is that to qualify for a short sale you need a lot of paperwork. You need to properly present your situation to the lender so they say "yes". The lender must say "yes" to you, as the borrower, and also to the buyer.

That's because the lender wants to make sure that they get as much for your house as possible. All the sale proceeds will go to the lender, so they want to make sure you are getting the best price possible.

It's a strange situation. You are the owner of your house until closing. But you will not see any of the sale proceeds. So you really don't care how much your property sells for!

How to escape your mortgage and keep good credit

That is one reason most short sales are done at a below market price. Of course, market prices are changing these days. What was the market price is no longer. In some areas, six months ago prices were considerably higher than they are now.

You still have to get your house sold, though, and it can't be too far below market. There are several good ways to sell a house on a short sale. Some people will call on ads that say "I buy your house for cash", which can work to some degree. Other times, a real estate broker may find a buyer.

But if you are in foreclosure you don't have a lot of time to sell the house. Perhaps the best way to sell your house is the "sell your house in nine days without fixing it up" system, which involves showing your house to as many as 70 - 150 buyers over one weekend and conducting a simple open auction. The house is sold Sunday night, basically.

The bottom line is this:

1. Determine if you can keep your house or not.

2. If you can't keep your house, is it worth less than what you owe?

3. If it is worth less than you owe, think "short sale".