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As the number of foreclosures continues to rise in Tucson, the local real estate community is becoming increasingly interested in a foreclosure alternative: the short sale.

In those transactions, sellers who are upside-down on a mortgage — owing more than their house is worth — convince their lenders to forgive some of the debt so that they can break even in a sale.

The downturn in the real estate market, coupled with increases in mortgage delinquencies, is making short-selling look like an attractive option for sellers in some cases, said Larry Pollman, a real estate broker who represents sellers in short-sale transactions. Pollman's company, HomeWay Realty, has seen a surge of short-sale listings within the past eight months, he said.

"They're in vogue now," he said. "When the market goes down, they become in vogue."

Short sales save lenders the hassle and added expense of foreclosures, which also often results in lenders receiving less than the amount of the loan, said Fred Brodsky, director of the Brodsky School of Real Estate.

"Lenders traditionally were hard-nosed, and they wouldn't want to talk to you if you can't pay," he said. "But now they're beginning to see the light. Banks don't want to be in the business of owning houses."

But for sellers, there can be a hidden consequence. If the lender forgives a portion of the debt through foreclosure or a short sale, the amount forgiven is generally viewed as taxable income by the U.S. Internal Revenue Service, according to a press release from the agency.

There is an exception for "nonrecourse" debt, for which a lender is not permitted to hold a borrower responsible for paying more than the collateral, said David J. Cohen, a certified public accountant at Beach, Fleischman & Co.

That includes most single- family homes and duplexes in Arizona, meaning those homeowners are not liable for any excess of debt after a foreclosure sale, he said. But that may not be true for loans that are refinanced, he said.

Lenders also often require sellers to "qualify" for a short sale by providing detailed financial information and documents to demonstrate hardship, Brodsky said.

Both Brodsky and Jim Hogan, owner of the Hogan School of Real Estate, are developing classes for real estate agents in short selling, which can be difficult for agents to handle.

Finding the correct person to speak with from the lender can be one problem, they said. Homeowners' emotions are also usually running high in those situations, requiring sensitivity, Brodsky said. Buyers might also have to have patience because it may take more time to work out the details with the lender, Hogan said.

"As opposed to taking a month (for a typical sale), it could take two months to three months," he said.

Regardless of whether short-selling is the answer, Hogan said, sellers should contact their lenders as soon as they learn they might be facing foreclosure. In some cases, other alternatives can be worked out.

"Many owners stick their heads in the sand," he said.

Speaking of alternatives to foreclosure, one seller who recently tried holding her own auction to combat a stubborn market ended up disappointed with the outcome.

Alison Torba planned to auction off a duplex and a single-family home on Sept. 30. The starting prices were $149,500 for the duplex and $79,500 for the house. Previously, they had been listed at $265,000 and $138,000. A buyer ended up snapping up the single-family home before the auction at $132,000. The duplex was sold at the auction for $200,000.

Torba said she ended up about breaking even.

"I'm disappointed, but I'm OK," she said.