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 is willing to sell, chances are the lender will have to settle for a lot less than a full pay-off of the remaining mortgage loan balance. Many lenders today prefer to give the owner a chance to list and sell a home at below market price before the foreclosure auction takes place. A sale at a price that doesn't produce enough to pay off the mortgage loan in full is called a short sale.
Though it seems counterintuitive, lenders are willing to give the go ahead for home sales at prices that won't satisfy the full balance owed on the mortgage. This short sale process provides a lender-approved means of mitigating a lender's losses due to a homeowner's default and subsequent foreclosure on the property.
It seems strange that lenders would approve a short sale, knowing that financial loss will result. Why is this so? Lenders use this strategy to avoid foreclosing on a property because an actual foreclosure is an extremely costly process. Not only must the lender repossess the home and resell it, but there are legal fees, insurance, taxes, real estate commissions, lost interest revenue and eviction costs as well.
Given the high costs of a foreclosure, many lenders actually net more money through short sales than through foreclosing on and reselling properties. In the current foreclosure crisis, lenders have far more REO (repossessed homes) in inventory than they can reasonably handle. This costs lenders time and money while these non-performing assets continue to sit on the books. But the costs of the foreclosure process itself aren't the only concern for lenders.
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 slash prices deeply in an attempt to get rid of their crowded REO inventory, and lenders now realize just how much of a financial burden a large inventory of REO homes can be. Because of this, lenders are very motivated to avoid foreclosing on homes in the first place. Short sales have become so common that many lenders now have specialized staff on hand whose primary job is to handle short sale offers submitted on properties in foreclosure. Lenders are pulling out all the stops to avoid foreclosing on properties that add to their growing inventory of foreclosure homes with high ownership costs and associated expenses.
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.
Imagine owners who have an over-financed house with high payments they can no longer afford. A short sale is often the only way for them to gracefully escape from their tough situation. For you as an investor a short sale is a unique selling proposition to foreclosure marketing and making great profits.
If the owner is willing to sell, chances are the lender will have to settle for a lot less than a full pay-off of the remaining mortgage loan balance. Many lenders today prefer to give the owner a chance to list and sell a home at below market price before the foreclosure auction takes place. A sale at a price that doesn't produce enough to pay off the mortgage loan in full is called a short sale.
Though it seems counterintuitive, lenders are willing to give the go ahead for home sales at prices that won't satisfy the full balance owed on the mortgage. This short sale process provides a lender-approved means of mitigating a lender's losses due to a homeowner's default and subsequent foreclosure on the property.
It seems strange that lenders would approve a short sale, knowing that financial loss will result. Why is this so? Lenders use this strategy to avoid foreclosing on a property because an actual foreclosure is an extremely costly process. Not only must the lender repossess the home and resell it, but there are legal fees, insurance, taxes, real estate commissions, lost interest revenue and eviction costs as well.
Given the high costs of a foreclosure, many lenders actually net more money through short sales than through foreclosing on and reselling properties. In the current foreclosure crisis, lenders have far more REO (repossessed homes) in inventory than they can reasonably handle. This costs lenders time and money while these non-performing assets continue to sit on the books. But the costs of the foreclosure process itself aren't the only concern for lenders.
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 slash prices deeply in an attempt to get rid of their crowded REO inventory, and lenders now realize just how much of a financial burden a large inventory of REO homes can be. Because of this, lenders are very motivated to avoid foreclosing on homes in the first place. Short sales have become so common that many lenders now have specialized staff on hand whose primary job is to handle short sale offers submitted on properties in foreclosure. Lenders are pulling out all the stops to avoid foreclosing on properties that add to their growing inventory of foreclosure homes with high ownership costs and associated expenses.
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.
Imagine owners who have an over-financed house with high payments they can no longer afford. A short sale is often the only way for them to gracefully escape from their tough situation. For you as an investor a short sale is a unique selling proposition to foreclosure marketing and making great profits.
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short sale strategies can help your foreclosure business and make your short sales negotiations a success.
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