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You unlucky soul. You missed the red hot real estate market and now need to sell your home in a bad market. So, can it be done and, if so, what are your options?

The first thing is to take a bit of solace. You are not the only one in this situation. While the real estate may go through periods of hot and cold markets, it never comes to a complete stop. Homes were sold yesterday. Homes were sold today. Yes, homes will be sold tomorrow.

The question for you, of course, is how to get in on this. Well, why don't we take a worse case scenario. Let's assume you purchased a home last year. You financed it with almost nothing down and went with a hybrid loan. That loan payments are interest only, but convert to a higher rate and amount next month. Put another way, you are going to have problems making the payments and you are short on equity.

The first step is often found to be an ironic one by most stressed homeowners. Instead of avoiding your lender like the plague, you should contact them. Lenders are fully aware of the problems homeowners are facing. The lender does not want defaulted loans on its book, so it will work with you. This often comes in the form of payment deferrals for six months or so. That gives you time and room to figure out what to do.

The second step is to objectively look at your situation. Assume you purchased the home for $450,000 in 2005 with a $400,000 mortgage. Prices, of course, have gone down in much of the nation. Much to your grief, you learn your home now appraises for $420,000. If you can't handle the coming increase in mortgage payments, it is time to sell now. You will come away with little monetarily, but you will at least keep your credit in good shape.

Okay, what if your home now appraises for $390,000 in the above example? You can't sell it because $390,000 isn't going to cover your mortgage. It is time to get on the phone with the lender again. You have two options. The first is to try to give the home to the lender through a deed in lieu of foreclosure. Most lenders find this an unexciting option, but give it a try.

Your second option is to go for a short sale. A short sale occurs when you sell the home to a third party and the lender agrees to take the sales prices as payment in full for the mortgage. The sales price is lower than the mortgage, so the lender is essentially cutting its losses. This is an excellent and effective option in a non-recourse state.

If you are one of the many people finding themselves in a bad real estate investment, don't run and hide. Take steps to deal with the problem and most lenders will do the same.