Short Sales Increase as Foreclosure Alternative

Short sales are gaining traction as an option for homeowners facing foreclosure, according to a new report from Realtor.com.

In a short sale, a homeowner sells their property for less than they owe on the mortgage. This process requires lender approval and is voluntary, unlike a foreclosure. Last year, the U.S. saw nearly 30,000 short sales, representing 28% of distressed home sales. While growing in popularity, foreclosures still occur twice as often.

Transactions involving short sales have increased by 30% since 2023, with a 16% year-over-year rise between 2025 and 2026. The report also notes that short sales are now being completed at a smaller discount compared to foreclosures, a reversal of a decade-long trend. Distressed homes sold via short sale now command approximately 9% more of their estimated value than those sold through foreclosure.

"Even in a strong economy with home prices close to record highs, a small segment of households find themselves facing tough circumstances," stated Realtor.com Chief Economist Danielle Hale in the report. "The good news for struggling homeowners is that they have more options now than in previous decades." Hale highlighted that while short sales can be complex, they can offer better long-term financial outcomes than the severe consequences of foreclosure.

Foreclosures are more common in budget-friendly markets, while short sales are more prevalent in mid-priced markets in the West and in Florida. Realtor.com identified Miami, New York, Tampa, Phoenix, and Houston as leading metropolitan areas for short sale listings, with Salt Lake City, Austin, and Dallas seeing the most completed short sales.

Despite being a potential alternative to foreclosure, some buyers avoid short sales. These listings attract about 20% less browsing interest on Realtor.com, and the need for lender approval can extend closing times by roughly 60 days, with a risk of the sale falling through.

However, for homeowners underwater on their mortgage, a short sale can be a viable path. The report suggests that short sales can free homeowners from remaining mortgage debt and allow them to qualify for a new mortgage in about four years, compared to seven years after a foreclosure. While credit bureaus may view both similarly, many consumers perceive short sales as having fewer negative repercussions.

"Foreclosures are the more common outcome, but borrowers facing difficulty should consider all of their options," Hale advised. "Engaging with a real estate agent who specializes in these transactions can be a smart move."