How Does A Lender Profit From A Short Sale?
A Quick Definition:
A Short Sale in the real estate industry refers to a situation where the homeowner sells a property for less than the loan balance. The lender will take what the property sells for and the homeowner can avoid foreclosure in its entirety and subsequently both, the Homeowner and the Lender have a win-win situation
With the rising number of foreclosures happening all around the nation, homeowners are looking for effective ways to avoid losing their homes to a foreclosure and avoid the deficiency that may incur with the sale of the property.
Moreover, it is not just the homeowners who are affected by this difficult situation of foreclosure, but also the lenders that have to bear a loss in their portfolios with a non-performing asset.
But exactly how the lender profits from a short sale?
In general terms, the lender is free from any maintenance and details in selling the property. It is an arduous task for them to take possession on a property in a foreclosure and prepare it for the market by performing various maintenance repairs, problems with vandalism and general maintenance costs.
Their loss thereby incurred is minimal by accepting a short sale rather than taking it all the way to foreclosure. As they are aware that the entire procedure of a foreclosure is also very demanding both in terms of money, time and labor, and by simply approving to the short sale of a property.. the lender can ensure that it saves them a lot of money and time.
Not to take in consideration the hiring of local attorney with high charging fees.
In short, by compromising on part of its due balance, the lender is basically saving a lot of its expenses that it would have to spend otherwise.
In some cases. .. Just the simple organization and execution of the property foreclosure auction could cost a lender as much as $30,000 plus for each property that forecloses and becomes a REO. That is not a sensible investment from their part and in way, they are simply forced in accepting the short sale.
But the question remains. .
Or let's say. .
What's The Million Dollar Question?
Why are lenders so SLOWWWWWW in collaborating with distressed homeowners and the ready to help real estate agents standing by to facilitate the transaction?
Why?, WHY?. WHY?
I asked myself that question many times.
There is no definitive answer. .
I simply concluded that Lenders are from Venus and Short Sale Agents are from Mars
Any property SOLD as a short sale, it means selling it at a value less than what the homeowner owed to the lender organization for the mortgage under question, I can understand their reluctance from this point of view. . I would not want to accept any short sale either… . when it means that I'm losing money at the conclusion.
But, when you add the repercussions of a foreclosure. .a short sale is definitely the better option for the lender.
Benefitting the homeowner is in my opinion a non-planned occurrence that just comes because with the fact and not because they want to "ASSSIST" a distressed homeowner.
Ultimately, I believe it's a combination of a lot of factors, some of them:
Mortgage Insurance: There is no incentive while a PMI is paying for the homeowner's missed mortgage payments.
Servicing Fees: There is no incentive for the middle man that gets paid in a monthly basis to elongate the short sale procedure. .there is more money if it takes them a year to HELP approve a short sale vs. .only 60 days!
Disorganization: I can understand that short sales surprised everyone. .
One year later, they should have re-grouped and put contingency plans.
Two years later? . .OK, come on guys. . People are asking for more short sales. .hire and train more people please
Three Years Later? Who is in charge here? . .You're fired!
Four Years Later? Do you really need the Government to intervene on what you should be doing from the very beginning?
- Homeowner misses mortgage payment. . Established hardship
- Lender orders a REAL APPRAISAL not a $35 BPO to determine value. .(you know, we are not talking about a couch here.. it's a house and houses cost a lot of money!! helloooo? McFly!)
- Listing Agent is given a proposed accepted NET HUD-1 allowing them to market as they see fit.
- Property gets SOLD and everyone benefits!
As the American dream takes newer turns, so are our efforts to help realize them. You can expect that is only natural for anyone to dream of a home, where one can live with their loved ones and cherish all their experiences that little by little is accumulated each day.
The most important thing is that we; as Real Estate Agents must help preserve that American Dream.
We can do it collectively one homeowner at a time.
I only wish that lenders acknowledge the long term benefits for the role that all real estate agents play on this.
We can start by proclaiming. .
"The American dream is not a Rental Home!"
A special thanks to my beautiful daughter for her modeling role "Playing with Cherry Blossoms"