Why Would My Bank Prefer a Short Sale Vs. Foreclosure?

When distressed homeowners are evaluating their exit strategies, Short Sale Vs. Foreclosure comparisons are bound to pop up.

A common question our clients ask us is, “Why would my Bank prefer a Short Sale Vs. a Foreclosure?”

The answer can differ based on the state you reside in, the type of loan you have and whether or not the subject property is your primary residence or an investment. 

Most banks prefer homeowners explore Short Sale Vs. Foreclosure.  Here are the most common reasons:

Top Five Reasons Banks Prefer Short Sale Vs. Foreclosure:

1.    Length of Time – your Bank does not want to invest its resources on distressed properties (Short Sales and Foreclosures) any longer than it has to.  Recent statistics show that nationwide, Foreclosures are now averaging 24 months to liquidate Vs. 12 months for Short Sales.  Your Bank is able to wrap up their loss in a much quicker period of time in Short Sale Vs. Foreclosure.

2.    Sales Price – your Bank also knows by now that Short Sales will sell for 10-15% more on average than a Foreclosure will.  One factor is that Short Sales are typically occupied and maintained while in process, while many REOs are vacant.  This means that the Short Sale property is in better condition than the REO, leading to a higher Sales Price for your Bank in a Short Sale Vs. Foreclosure.

3.    Costs – Foreclosing on a home is a costly process for your Bank.  Your Bank will need to hire expensive law firms, spend money securing, winterizing and maintaining the property and need to pay the utilities while they own it.  None of these costs will be incurred in a Short Sale, which helps your Bank net more on a Short Sale Vs. Foreclosure.

4.    Incentives – Believe it or not, your Bank may be given an incentive to successfully process and close a Short Sale.  Under the HAFA program, for example, servicers are paid $2,200 per successfully closed Short Sale.

5.    Negative Stigma – The financial crisis that began in 2008 has brought Banks’ lending practices under intense scrutiny, and resulted in a lot of negative blow back from consumers and the media.  While a Short Sale does not keep a borrower in the home, it minimizes the negative impact to the borrower and homes in the surrounding area, and gives the impression that Banks are at least willing to share in the pain.

These reasons should give homeowners optimism that their Bank will consider a Short Sale Vs. Foreclosure.  Not to mention that the homeowner faces less of a credit impact from a Short Sale, and can be in a position to buy another home far quicker than they would if foreclosed.  If you are a homeowner wondering if you should consider Short Sale Vs. Foreclosure, consult with a Realtor in your area who specializes in Short Sales to learn more about your options.