More Homes 'Underwater' in Struggling Economy

Forced to Sell Home in Sinking Market

For a year Bruce managed to stay afloat with her mortgage. Then she started sinking.

"That's when you sort of realize OK, I'm having a problem here," she said. "I'm still a full-time student, I'm taking a double course load to get through, and my husband was between jobs at that point in time. I started calling mortgage companies, saying this is what I was advised by my mortgage person and now I can't get ahold of him and is there anything we can do?"

Bruce needed to refinance -- fast. Her home's value started to fall, down to $300,000, then even less. Getting nowhere with refinancing, she decided to sell.

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"It's hard," said Bruce. "No one goes into a home purchase going, 'Yeah, I'm going to fail making the payments in a year.' I mean, you feel very silly, and you blame yourself."

Bruce called Willow Peacock, the agent who sold her the house, and asked Peacock to find a buyer.

"Hindsight is 20/20," Peacock says. "When she called me and she was in trouble, you know, I felt a little responsible. It was the market, and at that point my goal was to do everything that I could to help her out of that situation."

Peacock laid out two options: foreclosure or a short sale. Sell the house for less than the mortgage owed on it -- if the bank would allow it.

"A short sale is much easier and better on your credit than a foreclosure," said Peacock.

The Business Behind Short selling

But Bruce and Peacock said they had a hard time short selling the property.

"The bank was not willing to talk to our realtor," said Bruce. "She was met with hostility. We were not getting anyplace. We lost one buyer waiting on the bank. That's when we invited the National Short Sales Center to play."

Travis Hamel Olsen said four years ago he saw the writing on the wall. He and some partners opened the National Short Sale Center, which acts as a neutral third-party between homeowners and mortgage servicers to arrange short sales.

Their prescience has paid off.

"Business is going extremely well," said Olsen. "There are a lot of homeowners out there in need of a short sale, and fortunately we are in a position to help them out."

More banks are beginning to accept short sales as a way of stemming its losses.

"It is a win-win solution," said Olsen. "The banks, when they take ownership, contrary to what people believe, they don't' want to do that. When they take ownership, they lose a substantial amount of money. If they accept a short sale, they realize the homeowner is trying to have a proactive resolution to this problem, and the bank loses a lot less money."