The changing mortgage industry and the real estate market correction that started in 2007 and ended in 2012 are two factors in today's real estate market that contribute to the high rate of foreclosures. But here is the secret, the bank is not in the business of owning and selling real estate. They loose thousands of dollars in the process and would be much happier to settle it before it reaches that point, not because they care about the borrower or their credit but because they will save thousands on their bottom line!!!!!! That's where a short sale comes into play. LENDERS actually prefer to do a SHORT SALE. Homeowners who cannot make their monthly payments have the option to sell their home for less than what it's worth. Lenders are increasingly willing to work with borrowers faced with a financial hardship to accept a discounted payoff on a mortgage. By completing a Short Sale, the lender has arrived at a solution that is, for them, much better than a foreclosure. Bottom line, the lender wants to work with the borrower.
What is a Short Sale? Short Sale is the sale of a home when sales proceeds do not fully pay off the existing loan(s) and lender(s) accepts a discounted payoff to fully satisfy the loan.The best part, the existing lender pays virtually all sales costs, including commissions, escrow and title fees and repair costs. The borrower gets their home sold, the loan(s) paid off and they avoid foreclosure.
How much does a Short Sale cost the seller? Nothing, zero, zip. It’s true, in most cases the borrower will pay literally no sales costs if their lender approves the Short Sale. All commissions, title and escrow fees, and even most repair expenses are paid by the lender as part of the Short Sale approval. Remember, the lenders motivation to approve Short Sales and accept the resulting losses is to avoid bigger losses through foreclosure.
Why would a mortgage company agree to accept a Short Sale?
1) Legal Concerns – Mortgage lenders have come under legal pressure to work with borrowers to equitably resolve situations where borrowers are unable to meet their mortgage obligation, particularly when the borrower makes an effort to arrive at a compromise solution.
2) Wall Street is Watching – Mortgage lenders rely heavily on their ability to package and sell bundles of loans on the secondary mortgage market. They need to sell these bundles of loans in order to put the funds back to work by loaning the money again and collect loan fees along the way. When a home is in foreclosure it's a pure loss for them.
3) Asset Management Expenses- If a lender acquires a property through foreclosure, the property will be managed until it is repaired and resold. The bank has to pay someone to make repairs, keep utilities on, and so on.....
4) Reserve Requirement- Delinquent and non-performing loans place another burden on mortgage lenders. These funds cannot be put to work generating new loan fees until the bad loans are resolved.
Do lenders approve all Short Sales? NO. That is why it is critical to work with someone that has extensive experience at getting Short Sales approved. From the presentation of the Short Sale package to the lender to working with the lender's Loss Mitigation Department, it's important to work with a specialist.
How does a Short Sale affect a sellers credit? The big key here is to avoid foreclosure. By nearly any measure, a foreclosure is the most damaging event someone's credit status can encounter - worse than bankruptcy. By avoiding foreclosure, a seller will likely be able to resume normal borrowing (car loans, credit cards, consumer goods and such) relatively quickly.
The borrower must be going through some sort of hardship in order to do a Short Sale. Each Short Sale is subject to each different lenders requirements. In General , as long as the hardship is real and the mortgage company believes the loan is likely to become delinquent as a result, the Short Sale request will be processed by the Loss Mitigation Department.
How long does the process take? From the moment the buyer and seller sign the contract of sale it will take about 4 months for the bank to respond. Patience is required.
Be sure to use an SFR certified Realtor when listing your short sale or purchasing one. For additional information on the Short Sale process call Dennis Allen at (609) 377-1682. Dennis is a certified short sale and foreclosure specialist representing both buyers and sellers. Dennis has sold numerous short sales & foreclosures and has personally invested in both short sales and foreclosures since 1995.
President Ashore Realty Inc
Brigantine Beach, NJ