Should you choose a short sale over a foreclosure?

Behind on those payments? Consider a short sale -- if you want to avoid foreclosure, it may be your best option. See more real estate pictures.

Foreclosures aren't pretty. By the time you reach the point where a lender is prepared to foreclose on your home, you've likely been through months -- maybe even years -- of missed payments, warning letters and failed negotiations. You may feel that you've exhausted all your options to save your home, or at least to get out of the financial mess with minimal damage to your credit [source: Foreclosure Questions].

It's likely you're desperate for a lifeline. Luckily, there's an option that may provide that final-hour solution: A short sale, if you qualify for one, could get the unaffordable home off your hands, clear your mortgage with the bank and keep your credit from taking the massive hit it would face with a foreclosure judgment [source: Experian].

In its most basic definition, a short sale is a home sale where the bank agrees to let you sell your home for less than you owe on your mortgage. The new owner gets the home at a sometimes substantial discount, and the majority of your unaffordable mortgage is paid off [source: Foust]. You'll still owe the lender the remainder of your mortgage, but the lower amount owed improves the chance that the bank will write off the loss, rather than going through the cost of filing a judgment against you for it.

When conducted properly, a short sale can be an "everyone wins" situation: You're free of your mortgage with less-than-foreclosure credit damage, a new homeowner gets a home for a good price, and the bank clears a failed mortgage loan from its books [source: All About Real Estate Short Sales].

However, short sales aren't without risks, and they aren't a solution for every situation. Read on to learn more about who typically qualifies for a short sale, how the short sale prevents a foreclosure and what parts of the process you need to watch to ensure that your short sale is a successful alternative to a foreclosure.