Taking Advantage of Short Sales to Avoid Foreclosure
One of the tricks at the disposal of mortgage lenders to forestall foreclosure in soft real estate markets is a short sale. Once a homeowner with a high mortgage balance relative to the home's market value has gotten behind in his monthly payments, the lender must decide how to handle the borrower's default. The lender can either pursue foreclosure, or can try to convince the homeowner to sell the home to pay off the remaining 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 city and county governments to keep vacant foreclosure properties in good condition to stave of vandalism and drug related crimes. Some municipalities even file lawsuits against lenders that fail to maintain vacant REO properties in good repair. This risk is another reason why lenders increasingly prefer short sales over foreclosure proceedings.
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.
Short sale has many advantages for home buyers, since it provides an opportunity to buy a home at a substantial price discount before the public foreclosure auction. Realize though that a short sale is always subject to lender approval. Real estate investors can take advantage of this option by "flipping" the home to sell it at a profit, or by using the bargain home as a rental for ongoing income.
But why would a homeowner agree to a short sale? With so many homeowners out of work and unable to pay their mortgages, more and more homeowners are facing the real possibility of 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 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 city and county governments to keep vacant foreclosure properties in good condition to stave of vandalism and drug related crimes. Some municipalities even file lawsuits against lenders that fail to maintain vacant REO properties in good repair. This risk is another reason why lenders increasingly prefer short sales over foreclosure proceedings.
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.
Short sale has many advantages for home buyers, since it provides an opportunity to buy a home at a substantial price discount before the public foreclosure auction. Realize though that a short sale is always subject to lender approval. Real estate investors can take advantage of this option by "flipping" the home to sell it at a profit, or by using the bargain home as a rental for ongoing income.
But why would a homeowner agree to a short sale? With so many homeowners out of work and unable to pay their mortgages, more and more homeowners are facing the real possibility of 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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Negotiating your own short sales can be a challenge unless you master step by step short sale secrets and strategies
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