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Chapter 4: Reasons Mortgage Holders Find Short Sales a Viable Option

Lenders are beginning to see shortsales as a viable optionWhile it is obvious that a short sale offers benefits for both sellers and homebuyers, more mortgage holders are beginning to realize that this option can be beneficial to them as well. In fact, more and more lenders are beginning to view short sales as a viable option for loss mitigation, helping them to curb losses and recuperate as much of their investment as possible.

Some banks are even beginning to provide homeowners with incentives to go through with a shortsale rather than waiting to go through the foreclosure process. Instances have recently occurred when banks have offered thousands in relocation money to borrowers who choose to go through with a short sale.

Why are lenders beginning to see these sales as a viable option? Here are a few of the top reasons that mortgage holders are finding shortsale transactions a more popular option today.

Foreclosure Proceedings Now Take More than 300 Days

One reason lenders view short sale transactions as a viable option is because foreclosure proceedings are now averaging more than 300 days. Reports from CNBC have noted in the past that loans in foreclosure have been delinquent on average for 631 days. Of course, the processing times can vary greatly from state to state. In judicial states, the foreclosure process often takes much longer than in non-judicial states.

In some cases, months of auctions may take place and these auctions do not even promise lenders a sure sale. Foreclosures are also continuing to flood the market, which means most lenders are dealing with a huge inventory of foreclosures that they are trying to sell to recuperate some of their lost money. Long foreclosure processes also make it harder for the real estate market to begin recovering, something that most lenders are taking into consideration.

Many lenders are realizing that the length of foreclosure proceedings can be costly and can keep them from recovering any of their investment quickly. For this reason, short sales have become a more attractive option. This has led many banks to begin increasing the short sales they accept, leading to a recent surge in short sale property options on the market today. In fact, in 2013, it is expected that short sale properties will soon outnumber foreclosures as lenders begin using them to avoid the long foreclosure process.

Shortsales Provide Immediate Payment to Lenders

Another reason that banks now view shortsales as a viable option is because they can enjoy immediate payments when they choose this route. When waiting for a home to go through the foreclosure process, it could be months or more than a year before the lender finally gets any money back from the home. However, with a short sale, lenders can enjoy immediate payment on the home, as soon as they approve the short sale and the sale closes.

Even though foreclosures may go up for auctions, lenders are not assured of a sale, which means they may not get back any of their investment in today’s very uncertain market.

Lenders are Dealing with a Huge Flow of New Foreclosures

Although some real estate professionals expected 2012 to bring a reduction in new foreclosures, unfortunately, that was not the case. Throughout 2012, foreclosures continued to surge, with hundreds of thousands of borrowers facing foreclosure during 2012. It has been reported that since 2006, more than 5 million homes have gone through foreclosure within the United States and the flood of foreclosures continues to hit the U.S. real estate market.

This continuing flow of new foreclosures has led to quite a backlog of foreclosures with lenders. Most banks are holding a large inventory of foreclosures and finding it more difficult to sell foreclosures, especially since the market has been so flooded with low cost properties.

To avoid dealing with more foreclosure properties, banks are turning to short sale transactions to help reduce the flow of foreclosures. This helps lenders avoid adding even more properties to their inventory of foreclosures, which has led to banks offering incentives to homeowners that agree to a short sale instead of going through the long foreclosure process. Reducing the percentage of foreclosure loans with short sales also allows lenders to meet investor guidelines, which is important to lenders as well.

Next: How short sales save banks money