Short Sales boosted by foreclosure prevention efforts

All of the foreclosure prevention efforst seem to be working. Both mandatory and voluntary efforts to avoid foreclosure and prevent borrowers from losing their homes to foreclosure have been effective. Many borrowers have managed to avoid foreclosure and sell their homes as a short sale instead.

Although there are a large number of mortgages awaiting foreclosure, the short sale count has risen approximately 35 percent of overall liquidations and may be able to outnumber the foreclosures that are yet to be released. Lenders are working hard to minimize their REO inventory.

Although there are a large number of mortgages awaiting foreclosure, the short sale count has risen approximately 35 percent of overall liquidations and may be able to outnumber the foreclosures that are yet to be released. Lenders are working hard to minimize their REO inventory.

Why do lenders choose short sales over foreclosures? One of the major factors is the declining value of the home during the liquidation period. Homes lose too much value during the foreclsure process and the time it takes the bank to resell the home. During that time the lender is also having to make principal and interest advances until the final sale, which means the home sells far below the current broker price opinion (BPO).

Short sales can often be done quicker, therefore the lender doesn't end up making as many principal and interest advances. The shorter time frame also means less decline in value of the home - it doesn't depreciate as much. The quality of the asset is maintained as well, since the borrower facing foreclosure has to maintain the condition in order to do the short sale. Borrowers that foreclose often disregard any concern for the condition of the property, so even take out their frustrations on the home and the lender loses value do to the condition of the home alone.

Short sales end up being a win-win situation for the borrower and the lender. The lender doesn't lose as much as they would in a foreclosure an the borrower avoids some of the negative credit score implications of a foreclosure.  

If you are interested in more information about short sales, avoiding foreclosure or loan modifications please contact us or fill out the form below and we'd be happy to contact you.