Short Selling to Avoid Foreclosure

Posted by Daniel Peterson on October 10th, 2008 at 08:19am

Foreclosure home prices (REOs) can be cheaper than a short sale price. If you are trying to decide between waiting for the bank to take back a home or negotiating a short sale upfront, here are is what you need to know.

Lenders have a varying tolerance for short sales and mitigated losses. The majority of lenders have a pre-determined criteria for such transactions. Lenders aren’t emotionally attached to their properties, so they aren’t as likely to give you steal. Many short sales fall through if the BPO comes in too high, which is often the case. Lenders are motivated to accept short sale offers to for a number of good reasons.

Lenders aren’t emotionally attached to your property, what they are attached to is the ‘bottom line’. They want a foreclosure as much as you do. Lenders are not in the business of owning real estate. They get upset when they have too many properties on their REO (real estate-owned) books instead of out in the market making it a profit through monthly mortgage payments. Lenders have been rightly criticized for being stingy about the number and effectiveness of the loan modifications they have approved. But a good loan modification is the borrower’s best shot at relief.

Lenders are institutions, not people. They often move at a snail’s pace when evaluating a request for a short sale. Lenders can avoid the costs of property maintenance, utilities and homeowners’ association fees. Properties that go into foreclosure can take longer to sell, particularly in a declining market. Lenders absolve a portion of the mortgage and don’t end up owning property. Although borrowers lose their homes, they avoid the stigma of default, making it more likely they will buy another property in the future.

Banks will usually require a letter of hardship, financial info (pay stubs, w2’s, bank statements), and the listing agreement. This can be forwarded by the Realtor, but some banks require the owner of the property to complete the personal info. Banking systems that result in inadequate reserves amplify them but are not the base cause. Banks know what rate they are giving to the borrower and banks know approximately what the rates are going to be when they are adjusted in the future. If they don’t, they can hire a few actuarial’s.

Banks are notorious for taking as long as several months to respond to short sale offers. Some experts recommend that you give the lender a deadline to reduce the wait time. Banks do not want to be responsible for property management as it’s not part of their core business practice. They often are better off taking the minimal loss beforehand and be finished with the ordeal. Banks have problems, too!

Banks have a threshold at which they will accept or reject on offer in a Short Sale. And knowing these approximate discount thresholds is imperative in determining your list price for MLS, so that you are able to generate an offer that will meet the bank’s requirements, as well as cover all the Seller closing costs and protect your commission. Bankruptcy – This option can eliminate debt and/or allow more time. The guidelines have gotten much stiffer on who is qualified to have their debt eliminated.

Share and Enjoy: