A Short Sale is the sale of a house in which the proceeds fall short of what the owner still owes on the mortgage. Lenders may agree to accept the proceeds of a short sale and home owners are advised to seek out experienced Realtors® and negotiators if they wish to successfully complete a short sale of their home.
While most lenders will not be thrilled at the prospect of a short sale they are acutely aware that a foreclosure is usually a far more time consuming and costly option. In a real estate market where housing values are going down it is in the best interests of the lender to liquidate their problem loans as quickly as possible. With a short sale a property can be sold and the loan taken off their books fairly quickly.
If they pursue a foreclosure they run the risk of the process taking a substantial amount of time during which the value of the property is depreciating. Also, buyers will tend to write low ball offers when they know that a bank or lending institution owns the property. The property will also be left vacant which can result in vandalism and deterioration. Some owners will even gut the house just before the foreclosure sale as a way to “get back” at the lender. This is illegal but nonetheless happens on occasion. So, you can see why a lender might want to go the short sale route and get the loan off of their books with minimal hassle.
How Do Lenders Benefit?
Not having another “bad debt” on the books. Most investors require their lenders not to exceed 3% of bad debts on the books.
Not having to complete the expensive foreclosure process including all of the legal fees and procedural duties.
Not having to evict occupants and pay for their cooperation.
Not having to rehab the property. (I.e., Contractor bids, disgruntled borrower vandalizing, etc.)
Not having to later sell the property for no more than the proposed short sale would generate, or even less as the market continues to decline.