I probably don't need to waste your time talking about the record numbers of home foreclosures across the United States. If you've read a newspaper or watched the nightly news at all lately, you've heard all about it.

So instead of spending time on the back-story, let's get into the crux of this article. Let's talk about the ways that homeowners can avoid foreclosure in the first place. Specifically, let's discuss the real estate short sale and how it could help you avoid having your home foreclosed upon.

Let's start with a definition:

Short sale -- The sale of a home (by its owner) for less than the amount owed on the property.

The first question most people ask is this: "Why would somebody sell their home for less than market value? And for that matter, why would the lender be willing to accept less than what is owed by the homeowner?" These are good questions. So in order to understand the process at work here, we must tackle both questions in turn.

When homeowners can no longer afford the mortgage payments on a home, they face a possible foreclosure. The mortgage lender will foreclose on the home and sell it as quickly as they can. This usually happens at a real estate auction.

In many cases, however, the lender wants to avoid this process as much as the homeowner wants to avoid being foreclosed upon. The process can be expensive for lenders, because they have to pay an attorney, promote the property, auction it off, etc.

On top of that, many properties will not sell at the first auction, so the lending institution will have to take the home back, perform any necessary repairs, and hire an agent to market the home. Meanwhile, they still have that non-performing loan on their books!

For obvious reasons, the homeowner wants to avoid this entire process as well. For one thing, it can wreak havoc on your credit score. This makes it harder to get loans in the future. Also, the lenders losses could come back to haunt the homeowner.

One Way to Avoid All This

This is where the real estate short sale enters the picture. Through this process, the lender will often give the borrower a reasonable amount of time to sell the property prior to foreclosing on it, and they will often agree to accept less than what is owed on loan. Remember, a full-scale foreclosure can cost a lot for the lending institution, so it's usually in their interest to be flexible on the sale of the property.

In this regard, you can think of the short sale as the nearest thing to a win-win situation as possible, given the circumstances. The lender gets some of their money back and avoids further losses. The homeowner avoids foreclosure and the credit-damaging effects it can bring.

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