Homeowners who are unable to make the payments on the mortgage on their home have several options to consider. One such option is trying to sell their home and satisfy the outstanding mortgage. Unfortunately, because home values have substantially declined, often the value of the home is less than the amount of the mortgage owed. When this happens, the process of selling the home for less than is actually owed on the mortgage is called a "Short Sale".

The primary benefits of a short sale are that the owners have say in the sale of their home and they can often negotiate with the lender on whether any balance will be due and the terms of repayment, if any.

Lenders will consider allowing a short sale when certain conditions exist. Such conditions include: the mortgage is in default or close to default, the homeowner has suffered a recognized hardship (eg. unemployment, medical issue, death, bankruptcy, etc.), the property's market value has dropped, and the homeowner has little or no assets from which the lender could recover a deficiency judgment. When such conditions are present, the lender will often approve the sale of the home and will release their mortgage encumbrance.

The owners may not receive any proceeds or other benefit from the short sale. Further, the lender is not required to release the owner from any remaining balance due on the loan and will often require the owner to repay a portion of the remaining debt. If the lender does release the debt, the lender must issue a 1099 for the forgiven debt. However, there are many situations in which such forgiveness is exempt from such tax liability. A short sale will be negatively reported on the owners' credit report.

When considering whether a short sale is beneficial and should be considered, the owners should first consult with a real estate attorney and then engage a competent real estate agent who is familiar with the short sale process.