How to Sell Your Home in a Short Sale

Home short sale
Home short sale

If you want to know what a short sale experience is really like, just ask Erin. In 2005, Erin and her husband, then newly married, purchased their first home, in Sacramento, Calif., for $350,000. Just three years later, her husband's commodities business was in decline and their financial situation soured to the point where they couldn't keep up with their monthly payments.

The couple considered renegotiating the terms of their loan with their bank, which might have extended the life of their loan for 10 additional years. But considering that their home lost half of its value, the prospect of spending the next 40 years to pay off their mortgage seemed less than desirable. That's when they entertained a short sale.

"I've always considered myself to be an honest and forthright person, and there is no doubt that in making the decision to short sell I was, in fact, breaking my word and a promise I made to the bank to pay off their loan in its entirely," said Erin. "But when I step back and look at the big picture -- at the banking industry, all of the broken promises it has made to homeowners like myself who were manipulated into truly lopsided loans, and the reality of my financial situation -- it was clear that the short sale was our best and most viable option."

Stories like Erin's are certainly not rare. A short sale occurs when a homeowner in poor financial shape sells a home for less than the amount due on the mortgage, with all the proceeds going to the lender. They offer an appealing alternative to foreclosures, but that doesn't mean that it's an easier process to endure. Here's an overview of what a homeowner should do when considering selling in a short sale.