Short Sale Notes

Why banks and mortgage companies are willing to entertain short sale offers.

Although there are many properties in foreclosure today, people who are behind on their monthly payments can get relief by selling before they get forclosed on by negotiating with the bank in what is called a "short sale" agreement.

In a short sale agreement, both the bank and the seller can cut their losses and come out ahead in the long run. In most cases, the seller is not allowed to walk away with any money but they don't end up with a foreclosure on their credit report. Although the number of missed payments will show up on your credit and may keep you from being able to get another home loan for three to four years, it is better than a foreclosure which may remain on your credit for up to ten years.

While in many areas home prices are still low and many people can't sell because their homes because they are worth less than what they owe on them, a short sale may be the only way out for the seller and it may work to the benefit of the bank.

A short sale may help a bank net higher returns on the sale of home as opposed to taking it back through foreclosure. The positive net for the bank could be as much as 10 percent or higher. This is why banks may be willing to to participate in a short sale.

The short sale has to make financial sense to the bank. It cuts down on the fees that it would have to pay, such as the cost to hire attorneys, real estate agents to put the property back on the market for resale, drawing up and filing paperwork, paying possible city and county code enforcement fees, and making costly repairs if the occupants damage the property.

Foreclosures take time which causes the bank to lose money. A foreclosure usually takes as long as six to eight months and sometimes much longer if the mortgagee files for bankruptcy, applies for a loan modification, or remains in the property after the bank foreclosures forcing the bank to have to go through an eviction process afterwards to get them out. A short sale, if handled properly, can take less time.

Today, many realtors are trained to handle property that has to go through a short sale process. They have to know how to contact the right people in the bank and negotiate with them.

Note: Although in certain states, laws prohibit banks from pursuing consumers for the balance of a loan after a short sale has been concluded, you should talk to an attorney, an accountant, your realtor, or other professionals about possible short sale consequences.

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