Park City Board of Realtors president Lincoln Calder is concerned about misunderstandings regarding short sales. The term is often coupled with foreclosure in reference to housing crises, but a short sale is a process very different from a foreclosure.

Better understanding of the term could help home owners realize their full options when considering foreclosure and help buyers be educated consumers when looking for deals in the current market, he said.

Adding to the confusion, the concept of a short sale is fairly new and the process is different for every mortgage lender.

Basically, a short sale is getting the mortgage holder to agree to accept less money than is owed through the sale of the home to an outside buyer. This differs from a foreclosure in that the home owner is the one selling the home instead of a bank taking possession from the owner and selling it themselves.

The name comes from the owner being "short" in paying off the bank and the closing costs, explained Mark Seltenrich, president-elect of the Board of Realtors.

Typically, banks lose big in a foreclosure. They lose less in a short sale. An owner's credit is destroyed in a foreclosure, less so in a short sale. Seltenrich said it "nicks" their credit.

There's no standard way for banks to report short sales to credit agencies, so there's no way to predict what the impact will be, but it will always be better than a foreclosure, he said.

It's a better alternative all around, but it's a complicated process, Calder explained.

"It's kind of the Wild West out there," he said.

Short-sale transactions are the most difficult. Foreclosures are actually easier for Realtors, he said.

Sellers

Who should consider a short sale? The answer is a home owner whose mortgage is more than the value of the home and who is having trouble making the payments.

"It's important for owners to understand how to qualify," Calder said.

Because banks must approve of the short sale, they require home owners to prove they are incapable of paying the difference on the loan.

Before considering this process, an owner should first seek a loan modification, Seltenrich said. If an owner is incapable of making their payments, the problem is often temporary like the loss of a job or a salary cut. A modification can lower monthly payments. The federal government's "Making Home Affordable" program can help owners lock in those lower rates permanently.

But if the inability to make payments cannot be solved, short sales are a good option, he said.

Because there are no standard requirements or rules, sometimes banks make the home owner repay the difference on the loan at a later date. They let people out from underneath the mortgage payment, but they don't let them off the hook.

Because the process is complicated, Calder recommends hiring a qualified real estate attorney to give good advice.

Buyers

Buyers need to be fully aware of what a short sale means because the purchasing process takes much longer and is much harder than a normal real estate transaction.

Short sale has become a bit of a buzzword in the industry, Calder said. Some buyers are thinking they're a place to look for a good deal. Yes, they will be priced less than market value, but they will not be half that value or some other major reduction. Banks want to get as much of their money back as possible and will not want to negotiate much lower than market value.

Seltenrich said he has a buyer who is being patient because he loves the home, but the bank has taken more than 12 months in considering the offer. The seller is in no hurry because they haven't made a house payment in 18 months but are still allowed to live there until the bank makes its decision.

"There's no light at the end of the tunnel," he said.

Other Realtors are reporting similar problems and the National Association of Realtors is trying to lobby the government to standardize the process and require decisions from banks in a more reasonable amount of time.

But if a buyer has the time to be very patient (8 weeks is not unrealistic just to get a response to an offer, not necessarily an acceptance or rejection) and is working with experienced Realtors and attorneys, a short sale could save them money in the long-run, Calder said.

Because banks are accepting the offers to lower their own risk, they prefer cash payment or large down payments, according to Realtor magazine.

Another problem to be aware of, Calder pointed out, is that willing sellers will often agree to perform improvements or concede to less for work that needs to be done. Banks will sell properties "as is" in short sales.