Short Sales an Increasingly Attractive Alternative to Foreclosure
In difficult real estate sales markets, one of the tools used by lenders to minimize the financial losses associated with foreclosure is a short sale. Short sales are often utilized when homeowners with high mortgage balances are in arrears and unable to bring loan payments current. A lender can either proceed to foreclose upon the property, or can try to convince the homeowner to list the property for sale to pay off the outstanding loan balance.
If the owner decides that it's preferable to sell the home, in many cases lenders are willing to accept a payoff amount that is actually far less than the current loan balance. Especially in a difficult real estate market, lenders would often rather give homeowners a fighting chance at selling the property by allowing them to list and sell it under market price before the foreclosure auction. When a home is sold for an amount that will not pay off the entire mortgage balance, this is called a short sale
Though it may seem surprising, many lenders will authorize the sale of a home at a price that will not pay off the existing loan balance that the lender is owed. These short sales are lender-approved sales in an attempt to avoid foreclosure. By facilitating a short sale, lenders mitigate or minimize the losses suffered as a result of foreclosure.
Why would a lender allow a short sale if it will result in monetary loss for the lender? The lender is trying to lose less than it otherwise would if the home were to go through the actual foreclosure process, since foreclosure itself is extremely expensive for the lender. Foreclosure involves legal fees, loss of interest income, the cost of evicting the homeowner, back property tax balances, plus insurance and real estate commissions. Short sale results in the lender losing less money than it typically would with a lengthy and costly foreclosure proceeding.
The net amount available to pay the lender is often more with a negotiated short sale than a home acquired through foreclosure and then resold to the highest bidder. Lenders are now so overwhelmed with REOs (repossessed homes) that they simply can't afford to add more foreclosure homes to an already enormous roster of non-income generating assets. The soaring costs of foreclosure aren't the only reason that lenders look to short sales as an alternative.
Lenders are also pressured by local governments to keep repossessed, unoccupied homes in good repair in order to keep away vandals and drug criminals. Some municipalities even file civil lawsuits against lenders who fail to keep REO properties in good repair, result in even greater losses for the lender. Considering all of the ways in which a foreclosure could cost the lender money, short sale becomes a lender's preferred alternative.
Many lenders try to get rid of their large inventory of REO homes by making huge price cuts. Still, many lenders have found that owning a large inventory of foreclosure properties is more of a burden than it is worth. This is why lenders are increasingly reluctant to avoid foreclosing on homes if there is any other alternative available. Short sale has become such a widely used option that many lenders now have staff on hand whose job is to negotiate short sale offers submitted on foreclosure properties. Lenders are taking every possible step to avoid adding to the ever-growing burden and expense of owning vacant foreclosure properties.
For those who buy homes through a short sale process, there is a golden opportunity to buy a home at a deep discount prior to the public foreclosure auction. Consider though that a short sale can only take place with lender approval. For investors, short sales present an opportunity to buy and resell a property at a significant profit, or to convert the property to a rental for ongoing cash flow.
Why would a homeowner entertain an idea of a short sale? Due to current economic crisis many homeowners are finding themselves without steady employment. Without a paycheck families are falling behind on mortgage payments. Many are now facing foreclosure.
When homeowners are in over their heads with over-financed homes and no resources to pay high mortgage costs, short sale is often the only choice to exit a home gracefully after defaulting on a mortgage loan. For investors, short sales present an ideal opportunity to sell a foreclosure home at a great profit.
If the owner decides that it's preferable to sell the home, in many cases lenders are willing to accept a payoff amount that is actually far less than the current loan balance. Especially in a difficult real estate market, lenders would often rather give homeowners a fighting chance at selling the property by allowing them to list and sell it under market price before the foreclosure auction. When a home is sold for an amount that will not pay off the entire mortgage balance, this is called a short sale
Though it may seem surprising, many lenders will authorize the sale of a home at a price that will not pay off the existing loan balance that the lender is owed. These short sales are lender-approved sales in an attempt to avoid foreclosure. By facilitating a short sale, lenders mitigate or minimize the losses suffered as a result of foreclosure.
Why would a lender allow a short sale if it will result in monetary loss for the lender? The lender is trying to lose less than it otherwise would if the home were to go through the actual foreclosure process, since foreclosure itself is extremely expensive for the lender. Foreclosure involves legal fees, loss of interest income, the cost of evicting the homeowner, back property tax balances, plus insurance and real estate commissions. Short sale results in the lender losing less money than it typically would with a lengthy and costly foreclosure proceeding.
The net amount available to pay the lender is often more with a negotiated short sale than a home acquired through foreclosure and then resold to the highest bidder. Lenders are now so overwhelmed with REOs (repossessed homes) that they simply can't afford to add more foreclosure homes to an already enormous roster of non-income generating assets. The soaring costs of foreclosure aren't the only reason that lenders look to short sales as an alternative.
Lenders are also pressured by local governments to keep repossessed, unoccupied homes in good repair in order to keep away vandals and drug criminals. Some municipalities even file civil lawsuits against lenders who fail to keep REO properties in good repair, result in even greater losses for the lender. Considering all of the ways in which a foreclosure could cost the lender money, short sale becomes a lender's preferred alternative.
Many lenders try to get rid of their large inventory of REO homes by making huge price cuts. Still, many lenders have found that owning a large inventory of foreclosure properties is more of a burden than it is worth. This is why lenders are increasingly reluctant to avoid foreclosing on homes if there is any other alternative available. Short sale has become such a widely used option that many lenders now have staff on hand whose job is to negotiate short sale offers submitted on foreclosure properties. Lenders are taking every possible step to avoid adding to the ever-growing burden and expense of owning vacant foreclosure properties.
For those who buy homes through a short sale process, there is a golden opportunity to buy a home at a deep discount prior to the public foreclosure auction. Consider though that a short sale can only take place with lender approval. For investors, short sales present an opportunity to buy and resell a property at a significant profit, or to convert the property to a rental for ongoing cash flow.
Why would a homeowner entertain an idea of a short sale? Due to current economic crisis many homeowners are finding themselves without steady employment. Without a paycheck families are falling behind on mortgage payments. Many are now facing foreclosure.
When homeowners are in over their heads with over-financed homes and no resources to pay high mortgage costs, short sale is often the only choice to exit a home gracefully after defaulting on a mortgage loan. For investors, short sales present an ideal opportunity to sell a foreclosure home at a great profit.
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Negotiating your own short sales can be a challenge unless you master step by step short sale secrets and strategies
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