With the real estate market falling and mortgage payments for many people rising, many owners are having a tough time holding onto their homes.

Foreclosures are on the rise, and so is a lesser-known alternative called short sales.

Norm Krayem, the President of the Connecticut Association of Realtors estimates 20 percent of homes now sold in Connecticut are short sales.

A short sale is when owners sell for less than they owe on their mortgage and lenders agree to accept the smaller amount.

In years past, when the market was stronger, banks wouldn't even consider short sales.

Experts said short sales are happening most with owners who run into financial trouble after landing 100 percent financing or getting an adjustable rate mortgage, because interest rates are now on the rise.

Krayem said most banks do not want to foreclose. “Foreclosure is expensive for the banks, so if it's a reputable lending institution and they look at the facts and they are real, in many cases they will sit down and try to work something out."

It’s good news for buyers, who can close on homes well below market value and build instant equity.

When you sell through a short sale, credit scores will take a much smaller hit compared to foreclosure.

But economist Ron Van Winkle said the deals are complex and often fall through.

Also, he said you have to pay taxes on any loan amount forgiven by a lender and some still make you repay your shortfall in the future.

Van Winkle said to go to the bank before doing a short sale or foreclosure. He said to try to renegotiate that mortgage you have. “Maybe there's a way the bank can reduce your mortgage payment or some adjustment on it that can keep you in the house,” he said. “Because keeping you in the house is the best thing for you and keeping you in the house is the best thing for the bank."

NBC 30's Housing Crunch section