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 cooperate and sell the property, lenders will often settle for an amount far less than the current balance owed on the mortgage loan. Lenders would rather give homeowners a shot at selling the property below market value before running a foreclosure auction. When a home is sold at a price that won't net enough proceeds to pay of 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 approve the short sale knowing it will result in a loss? In the event of default on the loan that carries a high balance, the lender is simply trying to lose less than he might if he were to actually foreclose and repossess the house. The cost of foreclosure is high. It includes legal fees, lost interest, eviction costs, property taxes and insurance and real estate commissions.
This is why negotiated short sales may often bring the lender a higher net amount than a home acquired through foreclosure and resold later. Lenders have taken so many REOs (repossessed houses) they are now facing enormous costs, time, and losses as these non- performing assets are sitting on their books. But the foreclosure costs aren't the only thing that creates an enormous pressure on 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.
Most lenders are trying to get rid of their REO inventory and taking big discounts. But many now have discovered that ownership of large inventory of vacant properties is a huge burden. So they are more than ever interested in not taking the REO in the first place. That's why they now have special staff to deal with short sale offers submitted on properties in foreclosure. They are doing everything possible to avoid foreclosure and burdening themselves with the ownership responsibilities and 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.
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 cooperate and sell the property, lenders will often settle for an amount far less than the current balance owed on the mortgage loan. Lenders would rather give homeowners a shot at selling the property below market value before running a foreclosure auction. When a home is sold at a price that won't net enough proceeds to pay of 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 approve the short sale knowing it will result in a loss? In the event of default on the loan that carries a high balance, the lender is simply trying to lose less than he might if he were to actually foreclose and repossess the house. The cost of foreclosure is high. It includes legal fees, lost interest, eviction costs, property taxes and insurance and real estate commissions.
This is why negotiated short sales may often bring the lender a higher net amount than a home acquired through foreclosure and resold later. Lenders have taken so many REOs (repossessed houses) they are now facing enormous costs, time, and losses as these non- performing assets are sitting on their books. But the foreclosure costs aren't the only thing that creates an enormous pressure on 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.
Most lenders are trying to get rid of their REO inventory and taking big discounts. But many now have discovered that ownership of large inventory of vacant properties is a huge burden. So they are more than ever interested in not taking the REO in the first place. That's why they now have special staff to deal with short sale offers submitted on properties in foreclosure. They are doing everything possible to avoid foreclosure and burdening themselves with the ownership responsibilities and 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.
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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