For all the homeowners who are upside down and can no longer make their mortgage payment (because of either a job loss, divorce, or an option ARM that's resetting higher), up to now the only option was, well, letting the bank foreclose. That's not a good option since a foreclosure sticks on your credit record for at least 10 years. But some experts are now advocating a "short sale." This is a case of a distinction with a difference: If your bank agrees to a short sale, you then hire an agent to find a buyer for the house, you sell the house for a loss, and with the bank's blessing, they agree to eat the loss. (although they could still demand the homeowner make some kind of payment or share the loss).
To make the whole thing work you'll probably need to find a real estate agent willing to work 3 times as hard for the same or sometimes smaller commission (which makes the bank a little more willing to absorb the loss). You will also need to be willing to do some of the paper work required for final short sale approval, including provide finical statements and tax records. and you'll also need to scale back your own spending.
The best option is to find some way to stay in the house-by first, seeing if the lender is willing to restructure the loan, or forgo a couple of monthly payments to help you get back on your feet. More and more lenders are willing to make accommodations to avoid taking the property back. Banks hate to take over homes, especially in a declining market, so you shouldn't underestimate the willingness of a bank to make concessions
If you need help to work your way through the the confusion give me a call.
Short Sale -- A simple definition