First, let me begin by explaining what a short sale is not. It is not a conventional way of selling your home you will need someone that has experience in this type of transaction in addition to a realtor to sell your home. It is a lengthy process, and although it may seem like the perfect solution, there may be some hidden consequences you need to consider. I suggest you weigh all your options, crunch the numbers, and consult your tax advisor before making the decision that is right for you.

In essence, a short sale is a negotiation with your bank or lending institution to lower the outstanding mortgage debt. This negotiation, if successful, will enable you to sell your property at a lower price. There is a process to follow, and as mentioned above, it could take weeks or even months for an offer to be accepted. The reason for this time difference is based on how many steps it will take to reach the person or persons that will make the ultimate decision in reducing your debt. Financial institutions that have a large inventory of mortgages will probably be easier to deal with, as they will most likely have a department that handles this type of transaction, a Loss Mitigation Department. Smaller banks may not, so you may have to address the Board of Directors. Be prepared to present your case, take pictures, and give them a market analysis. Your realtor should be able to provide you with one free of charge. Remember, the bank must have a justifiable reason to approve your mortgage debt reduction.

Once your offer is accepted, you will be allowed to sell your home for this amount. You will be selling below market price in hopes of creating a bidding war. This is important, as this will attract more buyers and ultimately bring you more money for your pay off.

Why is more money important? Because it will lower the forgiveness amount. The only drawback, if any, to a short sale is that by accepting this reduction, you are accepting what is called debt forgiveness. At the end of the year, the bank will send you a 1099 for this amount, and you will most likely have to pay tax on this money. So with that in mind, the higher the sale price, the better.

Do not focus on the tax: keep in mind that had this forgiveness not taken place, you would have most likely ended in foreclosure while still owing some amount.

Considering where we are regarding loans and home values, this is an option that should not be dismissed.