Home ownership is part of the American dream, but if you experience financial hardship, it can become a nightmare. Options are available, however, if you find yourself in less-than-ideal conditions—including short sales, deeds in lieu, and foreclosures. And knowing what they are can help you make an informed decision.

Short Sale
It’s a situation in which homeowners ask their lender to sell their house for less than their outstanding mortgage.

Pros: You could minimize having your credit rating affected. The lender may lose less money than the costlier foreclosure option. Plus, you’re still living in the home, so it’s probably still in good shape—making it a more attractive home to buyers.

Cons: The process can take several months, which may not be ideal for you or potential buyers. Also, the lender (usually a bank) has final say, so you and a potential buyer can agree to terms, but the bank can balk.

Deed in Lieu
Also known as a mortgage release, a deed in lieu is a situation in which you transfer the title to your home to your lender so that you can be freed from your mortgage.

Pros: Your mortgage debt is erased. You may be able to stay in the house for several months or can possibly obtain relocation assistance. You’ll avoid being in foreclosure, which helps your credit rating.

Cons: Your credit rating is still impacted. The lender, having the upper hand, may offer tough conditions for accepting the deed in lieu, including the right to ask you to pay for financial shortfalls.

Foreclosure
Because of mortgage payments not being made, the lender takes control of the property from the people living in it.

Pros: The house is usually sold as quickly as possible, which could benefit a potential buyer and the lender, who could recoup more money because of it.

Cons: You’ll likely have hundreds of points slashed from your credit score. There’s boom-or-bust potential for buyers because they usually can’t see the interior before it’s sold.