ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Avoid Foreclosure With a Short Sale

Updated on August 31, 2013

Are You Facing Foreclosure?

You might have heard the news that we're coming out of the Great Recession. Yet, you might still be unemployed - or underemployed. Unfortunately, the fact that it is a "jobless" recovery continues to squeeze people out of their homes. Mortgage companies are not doing a great job working with people to refinance or modify their mortgages. That's not going to change.

If you want to avoid foreclosure and you simply do not qualify for a refinance or mortgage modification, what can you do?

New regulations have just been adopted governing so-called "short sales." This is when you sell your home for less than you owe the bank, and you walk away from the debt. Compared with foreclosure, a short sale isn't quite as much of a black mark on your credit report. Banks are also generally happier because they do not get stuck with a property to own, manage and then try to sell, as they do after a foreclosure.

In the past, the short sale process has taken up to a year to complete - initiated by the property owner. However, new regulations passed this month and effective in April 2010 will streamline and simplify things for those that are considering their options.

Is a short sale is right for you? Read on.

Can you avoid foreclosure with a short sale? (image from Mike Licht, on Flickr)
Can you avoid foreclosure with a short sale? (image from Mike Licht, on Flickr)

The Basics of "What is a Short Sale?"

The 2009 Foreclosure Alternatives Program

In December 2009, the U.S.Treasury Department issued new guidelines for short sales in order to cut down on the hassle of the process, and speed it up! Effective in April 2010, the Foreclosure Alternatives Program includes the following features :

  • Lenders/mortgage holders have only 10 days to approve or disapprove a short sale price.
  • The borrower is entitled to $1,500 in relocation credit to ease the move and minimize taking on additional debt.
  • Lenders/mortgage holders get $1,000, and second lien holders up to $3,000 when a short sale is approved, in order to encourage them to release the property for a lower price
  • Loan servicers cannot require a reduction in realtor/agent commission on a short sale.
  • Properties that may qualify must be a principal residence, under $729,000.

Suze Orman on Short Sales

Don't roll the dice on your property ownership future! (image from Woodleywonderworks on Flickr)
Don't roll the dice on your property ownership future! (image from Woodleywonderworks on Flickr)

Foreclosures vs. Short Sales

Wondering what the difference is between foreclosure and a short sale of your home?

The average rate of foreclosures to short sales as of the date of this publication is 3 to 1. That means that there are many more foreclosures - and a fair percentage of them probably do not need to occur!

Astoundingly (if not surprisingly), many Americans remain underwater on their mortgages. Once they are "trapped" in a property that is worth significantly less than when they purchased it, and then impacted by job losses and hiring freezes, paying the bills and getting out of debt can seem to be a hopeless proposition.

Of the non-foreclosure options, short sales are probably the most popular way to obtain debt relief for American consumers affected by the recession and predatory lending practices of the past decade. You may be able to discharge some of your debt outside of bankruptcy or foreclosure, and - under the Mortgage Forgiveness Debt Relief Act of 2007, you may not be liable for federal income tax on mortgage debt secured by a qualified principal residence.

Once you know the difference between a foreclosure and short sales, you can consider the risks and benefits of each and plan accordingly. It is advisable to seek professional guidance.

Good News for Property Owners When it Comes to Home Equity

The new Treasury Guidelines are not an early Christmas gift from the government. No, they've been adopted to help speed the recovery of the housing market.

When the federal government says that its streamlining a process and cutting down on paperwork, you've got to sit up and take notice! Of course, we won't really know the true impact of the new program until Spring 2010, when it goes into effect.

If your property is your primary residence and worth less than $729,000 (as described above), you may want to consider foreclosure prevention through a short sale. Several experts believe that the short sale reforms adopted in 2009 will be especially helpful in managing expectations. Ultimately, they can help make the "inevitable" happen more quickly, which will help not only the individual homeowners, but the economy as a whole recover more quickly.

Foreclosure and Short Sale Programs Can be Good News for Banks,Too

The short sale guidelines will ultimately help banks, too. Mortgage servicers do not desire to manage properties. Foreclosed homes are often vandalized and lay vacant, decaying, and further losing value over time. By taking a short sale, a new owner takes the property and the bank gets immediate cash - without having to wait for a foreclosure sale to go through.

Although the short sale guidelines compress deadlines for banks to act, they also retain a great deal of control over the process. Borrowers must obtain pre-approved short sale terms before listing the property for sale. Reduction of paperwork will also mean fewer headaches for all involved (homeowners, banks, real estate brokers and purchasers).

While we cannot change the past lending mistakes and mortgage mess, the short sale reform guidelines will help move us into a brighter future, getting the banks out of holding and purchasing properties and back to lending funds for potential homeowners.

© 2009 Stephanie Hicks


    0 of 8192 characters used
    Post Comment
    • jessicab profile image


      9 years ago from Alabama

      I am trying to avoid foreclosure and seeking out many things I can acquire. This is a very good hub and nice video.

    • OpinionDuck profile image


      9 years ago


      I agree, regulations need teeth to work.

    • Philipo profile image


      9 years ago from Nigeria

      This is a very detailed hub. It is also educative. Thanks for sharing.

    • stephhicks68 profile imageAUTHOR

      Stephanie Hicks 

      9 years ago from Bend, Oregon

      You are right, OpinionDuck - the banks are not cooperating very much at all. Whether with respect to short sales, refinancing or restructuring mortgages.

      Regulations can help, however, provided that there are penalties for not complying. They could even the basis for a lawsuit (or class action). Unfortunately, April 2010 is still more than 4 months away. People need help right now.

      The jury is out, but I would say that any additional measures to help homeowners is a good thing overall.

    • OpinionDuck profile image


      9 years ago

      The problem with the short sale is that the banks while capable of using them, still hang on to their old ways and reject them to the frustration of real estate people and their clients.

      The other complication is the secondary loans on the house that are equity loans. In California, the loans made on the house are all the interest that the loan holder has in the property. If they lose money because of foreclosing on the property they can't come back on the owner. This is not true in the case of secondary equity loans which were so very popular in the last several years during the boom. The loan holder can come back to the owner if they lose money on the loan.

      In my experience and my opinion, regulationa don't make it happen.

    • stephhicks68 profile imageAUTHOR

      Stephanie Hicks 

      9 years ago from Bend, Oregon

      Boy, Gerg - I totally hear you! Foreclosures are high in my Bend, Oregon area. I wince when I think about the alternatives that have not been fully vetted. Hopefully, the new short sale regulations will help homeowners, the economy and banks!

    • Gerg profile image


      9 years ago from California

      I'm happy to hear about the new rules - as a person who had to go through this last year, it was the most ridiculous (camel through the eye of a needle stuff) process I've ever experienced. I could write a book on it! ;-) Thanks for researching and sharing, Steph.


    • stephhicks68 profile imageAUTHOR

      Stephanie Hicks 

      9 years ago from Bend, Oregon

      Thanks - I agree. Short sales are a much better alternative than foreclosure or bankruptcy! For everyone involved.

    • profile image

      Bend Short Sales 

      9 years ago

      Nice summation of the new laws regarding Short Sales. As a Bend Oregon Short Sale Specialist, it has been a great feeling to help homeowners out of what they thought to be a hopeless situation. The banks are finally catching on that it is in their best interest too for the reasons you noted in your Hub.

    • stephhicks68 profile imageAUTHOR

      Stephanie Hicks 

      9 years ago from Bend, Oregon

      Thanks Nancy's - its very important for people to understand their options when it comes to home ownership and avoiding foreclosure.

    • profile image

      Nancy's Niche 

      9 years ago

      Oops---the mad clicker strikes again...LOL

    • profile image

      Nancy's Niche 

      9 years ago

      Great information with a clear-cut explanation of "short sales; thanks for sharing this with us…


    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at:

    Show Details
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the or domains, for performance and efficiency reasons. (Privacy Policy)
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)
    ClickscoThis is a data management platform studying reader behavior (Privacy Policy)