When you're late with mortgage payment you can either walk away and just let the natural course of foreclosure come to pass or you can try to protect your credit by going for a short sale.

Short sales work when you are in default or near default in paying for your outstanding obligations. It's easy to walk away and just undergo foreclosure but it's also easy for short sales to work if you have the knowledge to make it work.

The main advantage of a short sale as opposed to a foreclosure proceeding is the impact with your credit. Having foreclosure or bankruptcy reflect in your public records will have a huge negative effect in your credit history. Mark downs like this can affect you for years and it can be almost unrecoverable.

As I stated earlier, you can take advantage of a short sale when you are in default or near default in paying your mortgage. It's best to short sell your house when the said property is worth less than the loan you owe. For example, if your house is worth $150,000 and you owe a mortgage of $200,000 that you are no longer capable of paying. Sometimes the lender will allow homeowners like you to sell your house at a lower price.

Short selling is an option that is beneficial to you and your lender. Your lender will rather choose to undergo a short sale than a long, tedious and expensive foreclosure proceeding. For lenders, foreclosure proceedings can be more expensive. 

A foreclosure can cost your mortgage lender $40,000 or more. A short sale is the lesser of two problems for them.

In order for short sales to work, you need the to meet the following requirements:

1. The value of your property or home should be less than the unpaid balance due to your lender. Otherwise it isn't a short sale, right?
   Your mortgage is in default or may default. This means your payment is either late or not paid at all, or you cannot afford to continue making the payments for some reason.
2. 
   You must show a hardship of some kind. Even having to move out of town is a hardship if you need to sell your house. Don't get too hung up in the hardship.
3. 
   You must have no substantial liquid assets or no large amounts of equity in a home or business. A lender will never agree to a short sale if they think you can complete your obligation to them by going after your other assets. This excludes qualified retirement funds like your IRA and 401(k)

After this you will sell the house as you normally would. But on the purchase agreement you write "subject to lender approval" as a contingency.

Then you contact your lender and work to get them to approve the short sale. Sometimes you have two lenders and you then need to negotiate with both lenders.

You and your lenders will need to agree that the buyer you found is paying a fair price for your house. This price will normally be below what the market dictates in order for you to sell the property as fast as possible and given the fact that a short sale is an inconvenience to a buyer and they expect a discount in return.

It is much better to know what you are doing. I have prepared an outstanding video on short sales that outlines things in detail for you.

And watch this video on short sales and foreclosures. This is a screen shot — just type in your email and I'll get you to the real video. Thank you.