There are several reasons why banks accept short sales. The main one is banks don’t like to have what is called “non-performing” assets on their books. It looks bad for their financial backers and stock holders. If they think quickly liquidating a property from their inventory without taking a huge loss, they will agree to it. Secondly, lenders know they could lose a lot more money if the property goes to auction. The cost of foreclosure is expensive. You have to consider there are so many fees involved if the property actually goes to auction, the bank would be better off taking a discount beforehand and be finished with the hassle of the property all together.
Here are some more specific reasons:
* Wall Street – Banks rely heavily on the ability to package and sell bundles of loans to investors on the secondary mortgage market. They must sell the bundles of loans in order to put the funds back to work by loaning the money out again and collecting loan fees. If banks mortgages perform poorly after they are sold it could impact the lender’s ability to sell their loans on the secondary market. A short sale is a liquidation strategy to get the loan paid off quickly.
* Growing Legal Concerns – Banks Mortgage lenders deal with legal pressure to work with borrowers to equitably resolve situations where the borrowers are unable to meet their mortgage obligation, and particularly when the borrower makes effort to arrive at a compromised solution. We live in a litigious society and lawyers aren’t cheap to hire to work
for you.
* Reserve Requirement- Delinquent and non-performing assets place another burden on mortgage lenders. For all delinquent and non-performing loans lenders must set aside funds in reserve to deal with potential losses. These funds cannot be put to work generating new loan fees until the bad loans are resolved. When a bank accepts a short sale, the lender can put more money to work.
* Asset Management Expenses- When a lender acquires a property through foreclosure, the property will be managed until it is repaired and resold. It is expensive to manage real property assets – homes – that are spread throughout United States. Keeping properties maintained, managing their utilities, making repairs and the administrative costs attached to these activities are all costs the bank would prefer to avoid. When a bank accepts a shorts sale all of these fees are eliminated from their end.
Foreclosures are at an all time high. This is great news for real estate investors because more banks will agree to short sale more properties out from under their “bad/delinquent debt” inventory. Banks need investors to help liquidate more properties.
In the complicated world we live in, it’s good to find simple solouitns.