You may recently have been hearing a lot about a home sale transaction called a "short sale." Although this is not a new term, the adjustable rate mortgage crisis has given it renewed popularity. Simply defined, a short sale occurs when a bank or lender agrees to discount the outstanding balance on a mortgage. The homeowner then sells the home for less than the amount owed, and gives all of the proceeds from the sale to the lender. The lender may then forgive the remaining balance of the loan.

 

This can be very beneficial to the homeowner who is in danger of foreclosure. Although they still have to sell their home, they avoid having a foreclosure on their credit report. It can also be a better situation for the lender, as they don't lose as much money as they would have if they'd had to foreclose.

 

Although there are positives for both parties, it isn't a given that the lender will agree to the short sale. There can be a lot of "red tape" involved. Most lenders have specific criteria to determine who's eligible for this type of transaction.

 

Wikipedia has a great article that explains short sales a bit more in depth. Another article, from the Tucson Sun, also gives a bit more information and perspective.

 

What it boils down to is that each homeowner has his/her own set of circumstances that can influence both the availability and outcome of a short sale. Talk this over with your lender and an experienced real estate agent to ensure that you know what you're getting yourself into, and that its the right fit for you.