Why Would a Lender Short Sale?
Once a lender has determined the qualification of a borrower for a short sale; determined that they have a true hardship coupled with insufficient assets or income to pay back the debt, it becomes a numbers game of damage control. The lender must weigh the options at hand to decide their best exit strategy. It basically comes down to one of two decisions for the lender:
• Forgive part of the balance by accepting the short sale.
• Decline the short sale and proceed with a foreclosure if the loan is not brought current.
Basically, the lender needs to decide the best way to get the Non-Performing asset “off their books.”
Lenders understand that when a borrower falls behind on payments it often times leads to a foreclosure. On the lender side (as well as the borrower side) foreclosures may lead to significant losses. It’s estimated the lender may lose up to $100,000 or more for every foreclosed home taken to Trustee Sale auction in California and ultimately sold as an REO (an REO is a lender owned property).
Additionally, lenders prefer to stay in the lending business and out of the real estate or the landlord business. Every property they take back due to foreclosure places the responsibility of maintenance, property management, utilities, vandalism and holding costs back on the lender. Also, in a down market, the property may take a substantial time to sell.
It’s in the lenders best interest to avoid foreclosures and REO, short sales provide a viable option.
