Foreclosure Vs Short Sale
The recession has brought out the creative survival side in many markets, and the housing market is no exception. Due to the recently distressed property market in the US, banks are encouraging property owners to short sale instead of foreclose. Banks are currently hiring people who once used to work in the mortgage-lending industry and have moved them over to short sales. The government is encouraging lenders with cash incentives to allow approved homeowners to sell their homes for less than they owe, actually closing the deals on houses. It is a hot trend in the housing market right now and is expected to get even hotter as banks have increased their short sale approvals. These short sales accounted for 17% of all residential real estate sales in the month of February, up from 13% in November. As well, the Bank of America says it has more than doubled the amount of short sales it has processed in recent months.
This new trend in house sales heeds a warning to all who want to consider such a move. The reality is that you have lost your house and you still have to pay. Lenders have too much to lose on these transactions so they have been reluctant to approve the sales. They would often wait months before getting back to potential buyers, as the processes would remain stalled and take more than six months to complete. The procedure was further complicated if the homeowner had a second mortgage, adding additional time to make the approval.
Once approved, the first lender is paid in full before any money flows back to the second lender. Often times, the second-lien-holders are left with in the negative and have been the ones disapproving potential deals. That has slowly change as lenders realize they have less to lose on short deals than on a foreclosure. A foreclosure will cost a lender 50% as opposed to only 30% on a short sale. These short sales offer a way to get homeowners out of their financial obligation as well as get distresses properties off the books quickly.
As of April 5, 2010 US borrowers will earn a $3,000 relocation incentive and servicers will get $1,500 for handling the short sale. This comes as part of the new Home Affordable Foreclosure Alternative (HAFA) program as an incentive to offer troubled borrowers a short sale option instead of a foreclosure. Investors who own the mortgage will get a $2,000 bonus and the lien holders will receive up to $6,000 for releasing their claims.