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Why Do Lenders Prefer a Short Sale Over a Foreclosure???

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Mortgage and Lending with Guaranteed Rate NMLS# 2611 NMLS #151088

Why do lenders prefer a short sale over a foreclosure is a common question asked by buyers and sellers.  The reason all comes down to money.  Any home owner that does a short sale or has a property go into foreclosure ends up costing their mortgage company a lot of money.  When a seller does a short sale, it ends up costing the lender about 20-30% less than if they have to foreclosure. 

Maintaining a foreclosed property is an expensive understanding for a mortgage company.  The legal fees associated with a foreclosure can be costly for the lender.  They also have to pay for insurance and maintenance on it as well.  The biggest cost is loss between the amount owed on the property and how much they net once the property does sell. 

How do the economic numbers* look?

  • This has been the worst housing crisis since the Great Depression
  • There are currently over 1 million REO properties
  • There are over 6 million homeowners currently past due on their mortgage
  • The country's mortgage delinquency rate remains around 10%
  • The US unemployment rate is a 9.2% as of June 2011

All of these numbers paint a clearer picture of why mortgage lenders prefer a short sale over a foreclosure.

*Source: DA News, Lender Processing Services, Making Home Affordable Scorecard, Mortgage Monitor, www.financialstability.gov

 

 

 

 

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It is always advisable to consult with a knowledgeable lending professional when navigating today's turbulent mortgage and real estate marketplace.  I am committed, qualified and equipped to help you evaluate your options!

 

Also check out:

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  • Rodney Mason is a Licensed Branch Manager located in Atlanta, GA.   He can be reached at (404) 591-2453.

  • Providing financing for all cities across Georgia including: Acworth, Albany, Alpharetta, Athens, Atlanta, Augusta, Austell, Avondale Estates, Blairsville, Bloomingdale, Blue Ridge, Bogart, Brunswick, Buckhead, Buford, Canton, Carrollton, Cartersville, Chatsworth, Clayton, College Park, Columbus, Commerce, Conyers, Covington, Cumming, Dahlonega,  Dacula, Dalton, Dawsonville, Decatur, Doraville, Douglasville, Duluth, Dunwoody, East Point, Fayetteville, Flowery Branch, Gainesville, Greensboro, Hampton,  Hapeville, Hinesville, Hiram, Jackson, Jefferson, Jonesboro, Kennesaw, Lagrange, Lawrenceville, Lilburn, Lithia Springs, Macon, Madison, Metter, Morganton, Morrow, Newnan, Norcross, Oakwood, Peachtree City, Pooler, Richmond Hill, Riverdale, Rome, Roswell, Sandy Springs, Savannah, Scottdale, Statesboro, Stockbridge, Stone Mountain, St Marys, Sugar Hill, Suwanee, Thomasville, Thunderbolt, Tucker, Tybee Island, Valdosta, Waleska, Warner Robins, Waycross, Wilmington Island, Winder, Woodstock, and many more.

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  • Providing financing for all cities across South Carolina including: Aiken, Anderson, Beaufort, Bluffton, Charleston, Columbia, Conway, Edisto Island, Florence, Greenville, Hilton Head, Johns Island, Myrtle Beach, North Augusta, Orangeburg, Rock, Hill, Spartanburg, Sullivans Island, Summerville, and many more.  

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    Providing financing for all cities across Tennessee including: Athens, Brentwood, Bristol, Chattanooga, Clarksville, Cleveland, Cookeville, Dyersburg, Franklin, Gatlinburg, Greeneville, Johnson City, Kingsport, Knoxville, Maryville, Memphis, Morristown, Murfreesboro, Nashville, Newport, Oak Ridge, Pigeon Forge, Sevierville, and many more

 

All mortgage lending guidelines are accurate at time of post, but are subject to change without notice.  Please call for the most current information.

    

           

Comments(15)

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Chuck Carstensen
RE/MAX Results - Elk River, MN
Minnesota/Wisconsin Real Estate Expert

There still needs to be some reform in the short sale process but I feel the lenders are working on this more.

Aug 13, 2011 03:29 PM
Mary Macy
Top Agents Atlanta Metro - Roswell, GA
Top Agents Atlanta Metro

Short Sales are good for lenders and for homeowners alike, the general public, unfortunately does not understand this.

Aug 13, 2011 04:07 PM
Pacita Dimacali
Alain Pinel - Oakland, CA
Alameda/Contra Costa Counties CA

Well if the lenders are serious about short sales, then they'd better do something about expediting the process so that buyers and their agents would be more inclined to look at these properties, and hang around for the escrow to be completed.

 

Aug 13, 2011 08:24 PM
Rodney Mason, VP of Mtg Lending
Guaranteed Rate NMLS# 2611 - Atlanta, GA
AL,AR,AZ,CA,CO,FL,GA,IN,MI,MS,NC,NV,SC,TN,TX,VA,WA

Chuck....That it does.  Its never going to be a perfect process, but HAFA seems to be improving things.

Mary....So true.

Pacita.....Approval times do seem to be improving with short sales. 

Aug 14, 2011 06:05 AM
Sidney Kutchuk - Realty Works Temecula Kutchuk - Realty Works Temecula
Realty Works Temecula - Temecula, CA
Realty Works Temecula

Hi Rodney:  Great post, and I don't know if it's true but I heard that the banks get paid by the government for accepting short sales.  Horrible stats for the Nation as far as homeowner defaults!

Aug 15, 2011 04:28 PM
Rodney Mason, VP of Mtg Lending
Guaranteed Rate NMLS# 2611 - Atlanta, GA
AL,AR,AZ,CA,CO,FL,GA,IN,MI,MS,NC,NV,SC,TN,TX,VA,WA

Jane....Yes, there are financial incentives for the lender to participate in a HAFA short sale.

Aug 17, 2011 02:02 PM
Roy Kelley
Retired - Gaithersburg, MD

Good post, Rodney.  It is too bad that many lenders fail to take advantage of short sale opportunities.

This summer is a wonderful time for home buyers to take advantage of the attractive home prices and the very low mortgage interest rates.

 Life is good!

Longwood Gardens photograph by Roy Kelley.

Aug 18, 2011 02:36 AM
Not a real person
San Diego, CA

Happy Thursday!

Aug 18, 2011 05:24 AM
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Rodney - I agree that most banks do prefer to do short sales, however, I don't understand those banks who have an active escrow with a buyer and that they have been stringing along for five months and then all of a sudden they demand that they buyer close in 15-20 days before the trustee sale.  SERIOUSLY!!!  Would it have killed them give their ultimatum a week or two earlier.  AAARRRGGGHHH!!!

Aug 18, 2011 06:30 PM
Rodney Mason, VP of Mtg Lending
Guaranteed Rate NMLS# 2611 - Atlanta, GA
AL,AR,AZ,CA,CO,FL,GA,IN,MI,MS,NC,NV,SC,TN,TX,VA,WA

Roy...Short sales definitely have their challenges.

Russel....Hoep you had a great day.

Donne....That kills me too.  Its the "hurry up and wait" syndrome.  We don't order appraisals until we have lender approval for all mortgages on the property.

 

Aug 19, 2011 01:08 PM
Goran Utvic
Goran Utvic Real Estate Broker/Construction Consultant - Chicago, IL
Chicago 2 Flat Specialist

Rodney I agree...banks are not in the business of selling real estate and it makes them look bad to hold non-performing assets. A short sale is beneficial to both the homeowner and the bank.

Aug 22, 2011 05:10 AM
Rodney Mason, VP of Mtg Lending
Guaranteed Rate NMLS# 2611 - Atlanta, GA
AL,AR,AZ,CA,CO,FL,GA,IN,MI,MS,NC,NV,SC,TN,TX,VA,WA

Goran....For all involved, a short sale is much better than a foreclosure.

Aug 22, 2011 01:25 PM
Judd Reynolds
Exit Team Realty - Savannah, GA
Savannah, GA
Most professionals in the real estate business understand the short sale is better for most parties involved, its just trying on the nerves that deter many. Thanks for the post.
Aug 24, 2011 01:17 PM
Elva Branson-Lee
Solid Source Realty GA - Atlanta, GA
CDPE - Atlanta Real Estate & Short Sale Agent

I wish I could agree, but the banks (especially the big boys) always do something to prove this theory untrue. Apparently SOMEBODY (ususally the negotiator blames the "investor") thinks it is better to foreclose than to short sell, even when a viable, fair market offer has been on the table for months.  I cannot figure it out, but it just happened to one of my sellers yesterday, and everyone involved (buyer, seller, loan officer and both agents) is sick about it.

Sep 07, 2011 03:48 AM
Rodney Mason, VP of Mtg Lending
Guaranteed Rate NMLS# 2611 - Atlanta, GA
AL,AR,AZ,CA,CO,FL,GA,IN,MI,MS,NC,NV,SC,TN,TX,VA,WA

Judd....Short sales can be very trying.

Elva.....Yes, it is the end investor who makes the final decision.  Sometimes, the decisions don't always make the most sense.

Sep 07, 2011 05:43 AM
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