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Why Would a Bank Approve a Short Sale
At Short Sale Expeditor, where we have processed over 1500 short sales, we often get asked why would a bank ever grant a short sale. And, it is a really great question—if you sit down and ponder it a bit.
If a borrower owes more on their home than it is actually worth and they need to sell, what would be the advantage to the borrower’s lender to permit the short sale and settle the debt for less than the full amount due?
The answer is easy: They agree to it because it makes financial sense to do so.
It is quicker and more efficient to get a borrower out now in a viable purchase and sale transaction than to foreclose on the property and then resell it. Here’s why: If a borrower cannot afford the mortgage payments but does not sell, he or she may stay in the property until the foreclosure. This could be anywhere from 3 months to over a year depending on the circumstances. Say that the mortgage payments are $2000 per month. This would mean that over $24,000 would not be paid. Whereas, if the borrower leaves quickly, the mortgage would be paid and the bad debt would be off the lenders’ books.
To that end, if a foreclosure occurs, the bank now has to list the property for sale, pay all utilities and property taxes and maintain the property until the sale is completed. This may also mean that the bank (now the owner) would need to do upgrades or repairs in order to sell the property. Not interested in becoming a homeowner, the bank is interested in lending money to borrowers not owning homes and paying for the upkeep—the second reason that banks accept short sales.
Right now, with foreclosure moratoria across the country, nobody knows when banks will be allowed to begin foreclosure proceedings on homes where the borrowers are having trouble making ends meet. So, it seems that it would behoove most lending institutions to accept a short sale—if the terms and conditions are right.
This doesn’t mean that lenders will accept cents on the dollar. Most short sale lenders are looking for reasonable offers near market value. If you know anyone having trouble making ends meet who is underwater on their mortgage, a short sale is a viable option. We, at Short Sale Expeditor, can handle the tough conversations with the lender. So, if you or anyone you know needs help, feel free to contact our team.
If a borrower owes more on their home than it is actually worth and they need to sell, what would be the advantage to the borrower’s lender to permit the short sale and settle the debt for less than the full amount due?
The answer is easy: They agree to it because it makes financial sense to do so.
It is quicker and more efficient to get a borrower out now in a viable purchase and sale transaction than to foreclose on the property and then resell it. Here’s why: If a borrower cannot afford the mortgage payments but does not sell, he or she may stay in the property until the foreclosure. This could be anywhere from 3 months to over a year depending on the circumstances. Say that the mortgage payments are $2000 per month. This would mean that over $24,000 would not be paid. Whereas, if the borrower leaves quickly, the mortgage would be paid and the bad debt would be off the lenders’ books.
To that end, if a foreclosure occurs, the bank now has to list the property for sale, pay all utilities and property taxes and maintain the property until the sale is completed. This may also mean that the bank (now the owner) would need to do upgrades or repairs in order to sell the property. Not interested in becoming a homeowner, the bank is interested in lending money to borrowers not owning homes and paying for the upkeep—the second reason that banks accept short sales.
Right now, with foreclosure moratoria across the country, nobody knows when banks will be allowed to begin foreclosure proceedings on homes where the borrowers are having trouble making ends meet. So, it seems that it would behoove most lending institutions to accept a short sale—if the terms and conditions are right.
This doesn’t mean that lenders will accept cents on the dollar. Most short sale lenders are looking for reasonable offers near market value. If you know anyone having trouble making ends meet who is underwater on their mortgage, a short sale is a viable option. We, at Short Sale Expeditor, can handle the tough conversations with the lender. So, if you or anyone you know needs help, feel free to contact our team.
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