Your adjustable rate mortgage has reset and you can't afford the higher monthly payments. In a sluggish real estate market, the property isn't worth the same as the day you bought it. What's next?

For homeowners and lenders who share a devalued asset, the answer may be a short sale.

Short sales are deals between borrowers and lenders to sell a house for less than what is owed on the mortgage. Some in the real estate business expect their numbers to grow.

The growth of foreclosures in the past year has been attributed to the increase in adjustable rate subprime mortgages. Such loans allowed people with less than perfect credit to buy property, often with little or no money down. Those resets are now pricing some homeowners out of their houses.

Short sales come with advantages and disadvantages for both borrower and lender.

For the homeowner, short sales avert a foreclosure process that can damage their credit record. Travis H. Olsen, president and principal partner of the National Short Sale Center in Scottsdale, Ariz., said foreclosure histories can keep someone from obtaining new credit to buy another house for up to 10 years.

But short sales aren't perfect solutions for consumers because they can still reduce a credit score by 75 to 100 points, said Burt M. Hoffman, a Stamford, Conn., attorney. Short sales are a growing part of his practice.

Lenders will consider such sales as an alternative to foreclosure because the latter process is time-consuming and costly, Olsen said.

For example, banks in New York can lose up to half of the mortgage's value in foreclosure because the process can take up to 280 days. Interest payments go uncollected, unpaid taxes pile up and lawyers and real estate agents must be compensated for their services. Disgruntled homeowners in arrears may let the property's condition slide, or they may even damage the property out of spite or frustration.

Selling a property short of what's owed on the mortgage can get an unproductive asset off an investor's balance sheet quickly.

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