A well-known index of home prices in the country indicates that property values fell over 10% in January in both large metropolitan areas and in wider geographic areas. This obviously indicates a worsening foreclosure crisis, and homeowners may no longer have enough equity to refinance or sell their homes outright. Many of them may be completely underwater by ten or hundreds of thousands of dollars.

The banks, too, are worried about this, because homeowners who feel they have nothing to lose by walking away will be much less inclined to try to stop foreclosure. Many people simply feel that it is not worth the effort to negotiate with a mortgage company to be able to keep paying a mortgage for a property that is increasingly worthless. In this real estate environment, selling at a short sale can help both the banks and owners unload a property and receive a fair price, and avoid taking the mortgage through foreclosure and having it sit on the open market for months.

Especially for homeowners who are worried about their finances, or are already feeling the effects of the recession, a short sale may allow them to avoid foreclosure very quickly. For the right price, many investors can put in an offer on the house within a few weeks, and the lender may be willing to put their foreclosure on hold while the sales process is pursued. Not all lenders allow short sales, but many of them are now willing to consider offers, because they know how overvalued properties were and getting anything to pay the loan is better than nothing.

The main benefit of the short sale is that it allows a sale of a house for its current market value or less, which may be far less than what the homeowners owe on the mortgage. The sales price can be negotiated between the buyer, seller, and lender, all of whom are interested in avoiding foreclosure and getting the most out of the deal. Many investors are expert at influencing the bank's estimate of the value, and will attempt to negotiate for as low a sales price as possible, which helps the homeowners because they will be able to sell to an interested party for a price that reflects reality.

The short sale can also be completed fairly quickly, compared to listing the house for what is owed on the mortgage and waiting months or years for local real estate markets recover. Once the homeowners have an offer, they can submit it to the bank and request that the foreclosure process be put on hold. The lender is often willing to do this, if it seems there is a reasonable chance they will get the mortgage paid off and avoid foreclosing on the house.

Benefits of a short sale far outweigh any potential drawbacks, especially in circumstances where the owners of a property owe more than their home is worth. Banks know that they would never be able to make up the entire amount of the mortgage if the property was taken all the way through foreclosure, so they are also more willing to negotiate a reasonable price when markets are declining. Although selling at a short sale does not directly save the home and allow the owners to continue living there, it can give the owners another option to stop foreclosure and deal with a significant loss or lack of equity.

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