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