Evelia Castrejon moved to Utah 13 years ago from her native Mexico in hope of finding her American dream, which included owning a home.

She bought a house, but her dream became such a financial nightmare that she was forced into a desperate situation, owing more money than the home was worth.

Castrejon is among a growing number of people in Utah and across the nation who have found themselves owing more on their home than the property's current market value. She is in the process of "short-selling" her home.

In a real-estate short sale, a lender allows a customer to sell a home at fair-market value and pay off the loan for less than the amount owed on the loan, said David Knight with Wells Fargo Home Mortgage. Restrictions associated with this option include not selling the home to family or friends.

When a short sale is completed, it is reflected as "paid in full for less than full balance" on the customer's credit reports, Knight said. In today's market, lenders would typically require the borrower to pay off the deficiency over time, rather than just forgiving the loss.

But for homeowners, the advantages include avoidance of having a foreclosure on their credit history and the partial control of the monetary deficiency. Also, a short sale is usually faster and less expensive than a foreclosure.

Banks often choose to allow a short sale if they believe that it will result in a smaller financial loss than a foreclosure, Knight said.

The number of real-estate short sales has surged in Utah in recent months. Salt Lake Board of Realtors spokesman Dave Anderton said that about 6 percent of the board's active listings and under-contract properties — a total of about 10,000 properties — is now made up of short sales.

But the increase in short sales and foreclosures has contributed to the decrease in home prices along the Wasatch Front and the rest of the state, he said.

Home-sales numbers released by the board in July showed that 61 of 81 ZIP codes in four Wasatch Front counties saw decreases in median home prices during the second quarter of 2008, compared with the same period last year.

Meanwhile, foreclosures have skyrocketed in Utah in recent months. Jim Wood, director of the University of Utah's Bureau of Business and Economic Research, said Utah's foreclosure rate of about 1.5 percent is not on the scale of other troubled states across the nation, but the Utah rate could hit 3 percent over the next year. He characterized the current financial markets and housing situation as "chaos" of historic proportions.

"We've never seen anything like this," he said. "This is really unprecedented."