The homeowners: April Reed, 35, a real estate agent, and Eric Reed, 38, an electrician.

The home: In October 2005, the Reeds bought a house for $294,000 in Chester, Calif., a small mountain community east of Chico, Calif., and west of Reno, Nev. The three-bedroom, one-bathroom 1950s ranch home offers 2,050 square feet of space, room for their family of five.

The mortgage: The Reeds financed 80% of the home with an adjustable rate mortgage, which started at 6.6% for the first two years and reset to 8.5%. The couple got a piggyback loan for the remaining 20%, at a rate of 10%. Their mortgage payment was initially $2,050 a month but reset to $2,350 in September 2007.

The Reed family

In July 2006 the Reeds moved to San Diego for better job prospects. Ms. Reed says that they assumed the Chester home would sell without many complications, so they went ahead and bought a home in San Diego for $429,000 and took out a 30-year fixed mortgage at a 6% interest rate and put 5% down, or $21,450.

They chose to rent out their Chester home because they would have faced costly tax ramifications for selling it after owning it less than two years, Ms. Reed explains. (A homeowner who has owned a home -- and lived in it as a principal residence -- for at least two of the five years prior to its sale -- may be able to exclude up to $250,000, or up to $500,000 for married joint taxpayers, of gain on the sale of a home.)

The Reeds found tenants who showed interest in buying the property, and who agreed to pay $1,000/month in rent (the going market rate at the time). But the tenants did not wind up buying and when they moved out in late 2007, the costs on the home were too high for the Reeds to handle and they stopped making mortgage payments on the home. Instead of trying to renegotiate their mortgage, they decided to do a 'short sale,' in which the home is sold for less than is owed on the mortgage

Losses: Approximately $17,000. From July 2006 to November 2007, the monthly rent payments the Reeds received were less than half of their monthly mortgage payment, which was on top of the $3,300 payments they pay each month for their new home, Ms. Reed says.

BY THE NUMBERS Local Market: Chester, Calif. (Plumas County)Median home price: The median single-family home price during fourth quarter 2005 was $280,000, but fell to $245,000 during first quarter of 2008.Inventory: There are currently 47 active listings in Chester with an average price of $315,000. Seventeen homes sold during the fourth quarter of 2005, but only three sold during the first quarter of 2008.Average days on the market: Homes took an average of 122 days to sell during the fourth quarter of 2005, but took an average of 361 days in the first quarter of 2008.Source: Plumas Association of Realtors

Background: The Reeds secured a potential buyer for their Chester home in March – the same month they received a notice of pending foreclosure from their lenders, who had set a June auction date for their home. With the pressure on, the couple set a low asking price of $200,000 – less than the roughly $235,000 they owed on their first (80%) mortgage. Local homes similar to theirs were selling for $240,000, Mrs. Reed says.

The buyer offered $200,000, but Popular Mortgage of Miami Beach, Fla., which holds their first mortgage, ordered an appraisal on the property in April that valued the home at $250,000 and asked the Reeds to secure a higher offer. The Reeds' buyer got lender approval to pay $235,000, a price that Popular Mortgage accepted in late April.

PREVIOUS COLUMNS • Phoenix Couple Struggles to Hold On to Several Investment Properties• A California Couple's Descent into Foreclosure, Bankruptcy

In early May, Ocwen Financial of West Palm Beach, Fla., which holds the piggyback mortgage, approved the deal, even though it would only get about $3,000 of the more than $50,000 that the Reeds owe, Ms. Reed says. Neither lender offered comment on Ms. Reed's situation, but both acknowledged that they do approve short sales; the lender agrees to accept a payoff of less than the balance due on the loan.

The Reed family house in Chester, Calif.

Current status: The Reeds completed their short sale in the last week of May.

Ms. Reed says neither lender will require the couple to repay any of the $16,450 for seven months of missed payments, for which she is grateful. A spokesperson for Popular Mortgage confirmed that the lender typically doesn't require repayment of the outstanding mortgage balance in such a situation.

"It's been a long road," Ms. Reed says. "We just wanted to cut our ties."

EmailRealEstateJournal@wsj.com

Nirula`s to dish it out across India

Residential Rentals in Delhi up 13% in 2008

Ed McMahon Faces Foreclosure

More Homes Hit Market in April

Judge Rejects Countrywide Settlement