Often times when talking with a Seller they ask, “Why would a lender agree to a short sale?” The short answer is, “It’s in the lender’s best interest.”
When you miss a monthly mortgage payment your loan become a “non-performing asset” to the lender. Now instead of an asset, it is a liability. It is money on which they are earning no interest.
Even worse the lender must now put back up to eight times that amount in reserve. This is additional monies on which they earn no interest.
Since earning money is what they are in business for, the lender stands to lose less money by accepting a short sale. Then they can put the money back into circulation to earn even more money.
A study conducted in 2002 by Craig Focardi of the Tower Group estimated the entire costs of a foreclosure to the lender was $58,759 and took 18 months. You can understand why the loss of a short sale is less than the cost of foreclosure.
Once a lender takes the property through foreclosure that property becomes bank owned. You have heard properties described as REO. That stands for real estate owned. The more REO properties held by the lender the worse it looks for the lender and the more reserves they must carry.
Bank owned property is a headache for the lender. Now they have to cope with property maintenance, utilities, and HOA fees. They then must list the property with a REALTOR and pay a commission. They also must insure the property and deal with the possibility of vandalism by the previous owner or others.
So, you can see why your lender is motivated to accept a short sale. They can quickly recoup the loss by putting their money back into circulation.
(Copyright © 2007 By Dan Forbes, All Rights Reserved.)
I have found that motivated lenders is a term that accurately describes how desperate banks are right now. It is very believable that a foreclosure could cost almost 60k and take 18 months. I was a skeptic at first until I discounted my first loan by almost 70K!
Jonathan Christopher of Short Sale Way
Comment by Jonathan Christopher — June 2, 2008 @ 9:14 pm