Homeowners Seek Debt Relief Through Short Sales

Consumers are working out short sale transactions with their lenders in greater numbers to stave off foreclosure and protect their credit scores, new data shows.

Data from research firm CoreLogic reveals short sale transactions have tripled since 2008, the Washington Post reports. Federally backed mortgage guarantor Fannie Mae permitted 36,534 short sales during the first six months of 2010, more than three times the number of transactions it approved for both 2007 and 2008, the Post notes.

The spike may be largely due to consumers' desire to protect their credit scores. Short sales may also be a homeowner's only option to avoid foreclosure. Consumers who lose their homes to foreclosure are put in a more detrimental financial position and suffer more credit score damage than those who engage in short sale transactions.

Short sales may also be less costly than a foreclosure because lenders and many mortgage companies are able to place the homes back on the market more quickly.

Homeowners with underwater mortgages are usually the most common short sale applicants, but many Americans continue to seek debt relief through mortgage modification programs. Although the federal Home Affordable Modification Program has received criticism as of late, the initiative carries the lowest re-default rate in comparison to other modification plans.