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Many people purchase their homes thinking that they would be staying in it for a long long time, but then unpredictable events happen wherein they are forced to move.

Be it positive or negative, you can’t predict situations like job relocation, divorce, financial difficulties, or death to occur.

When these things happen, they will have to put their home in the market so they can move. Before, selling your house was not really a problem, but with the home values dropping, it has become a problem for a lot of people.

Over the past year, housing prices have been plummeting in some areas and the profit from the property just isn’t enough to pay off the outstanding balance of mortgage and cover the selling and moving costs.

Most homeowners feel they have no choice but to either walk away from the mortgage, or let the banks foreclose on their property, or bankruptcy. All of these options are have a consequence and it will take a long time for your credit rating to be restored.

Depending on your outstanding mortgage, the best alternative that has a significantly lower negative impact on your credit would be a short sale.

What is a short sale? A short sale is when the lender forgives a portion of your mortgage and accepts a lesser amount than your loan balance.

This is not something that banks or lenders would like to do, but in most cases, it is better than doing a foreclosure. Usually, foreclosures costs more money, but not always. Banks are strictly regulated by the Federal Reserve. If their outstanding loans go beyond what is limited by the Federal Reserve, they will be fined and sanctioned. So if they find that doing a short sale is going to save them money, then they will approve the short sale.

You have to be truly experiencing financial hardship, to be eligible for a short sale. You will have to disclose your assets, and there are documents that the borrower needs to submit to the lender to get the short sale approved; Financial statements, tax returns, pay stubs, medical bills, stocks, bonds, divorce decree, etc. Along with these documents, you will need to write a “Hardship Letter” to explain your financial difficulties.

You will have to put your house on the market. Once you sell the property, you will have to supply more documentation; A copy of the purchase agreement, a copy of the comparative market analysis, and a net sheet that shows how much you net from the sale of the property

The forgiven debt is taxable income, and will be reported to the IRS.

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