So, what is a short sale? A short sale is a way of selling your over encumbered property. Many people find themselves with property that they purchase in 2004-08 at market price and now find that they actually owe more than what it's worth. Most have seen a significant drop in value. So what are your options?
1) Continue paying and hope someday it will even out
2) See if a Loan Modification will help
3) Give the property back
4) Stop Paying and get foreclosed
5) Do a short sale
Option 1, if you continue to pay you may eventually even out but it may take years. If the difference from what you paid and what's its worth isn't that significant you may want to opt and hold on. If the gap is too large you may just be burning your money. Find out how much your home is worth and make a decision.
Option 2, If you have a crazy loan, high rates, variable rate, ARM, this might do it. Call HUD and find out what they can do for you. If you have income to pay you will be surprised what they can do for you. They will not modify if they see there is no income.
Option 3, You just walk away. Most people can't afford to do this. In essence you call the bank and you tell that you want to return the property to them. Many times they will offer what is called "cash for keys". Meaning that they will pay you once you leave the house and give them the keys. It's a nominal amount but it's something.
Option 4, This one doesn't make too much sense as you do have a lot of options. Don't get me wrong, if you can't pay you can't pay but still try to get modified and still list and try to sell your home. The results will be the same and if you do a short sale or loan modification odds are you will stay in the house much longer.
Option 5, Short Sale, why? Out of all the options this is a viable option because the time factor. If you default you will be forced out in 90 days from the notice of default. But with a short sale or loan modification you will still be in foreclosure but there will be no sale date. Normally when you are either doing a short sale or loan modification they will take it off calendar so that they have enough time to review.