Can A Lender Profit From A Short Sale?
Today’s tough economic climate has encouraged industry and individuals alike to take a second look how best they can turn potential losses into profits or at the very least, how they can minimize the damage. The real estate and mortgage industries are no exception. Each has been hit hard during the national foreclosure crisis that began in 2009 and no doubt they have both wondered if a lender can make a profit from the today’s very common reality of short sales.
Short sales occur when a financial institution allows a property to be sold at a price lower than the homeowner’s original mortgage amount with the difference generally, but not always, being forgiven. This allows borrowers to be relieved of their mortgage debt and ownership of the property without badly affecting their credit score. Short sales also allow new borrowers to purchase homes at discounted prices, keeping the real estate market from freezing up and ultimately ensuring that the national economy does not come to a grinding halt.
So can a lender profit from a short sale? It actually seems to be more about mitigating their losses. When financial institutions are able to “stop the bleeding” and avoid the costly and time-consuming process of foreclosure, they ultimately come out ahead. Typically, foreclosed properties do not yield high selling prices and this is obviously not optimal. Lenders now seem to prefer to engage in a short sale, ensuring correct property evaluations and ultimately a more adequate sale price. In addition to this, short sales do not require lenders to provide repairs and renovation to the properties like foreclosures commonly do. Finally, when a financial institution engages in a short sale, there is no need for the use of marketing or selling services, which along with foreclosure fees can be costly expenditures. Simply put, real estate short sales make certain that in today’s tough economic climate, both maximum profit and efficiency are taken full advantage of. For extended information on short sales and foreclosures visit the bank foreclosed homes guide.
In the recent past, it was more common for a borrower to initiate a short sale process with a financial institution to stave off foreclosure. It was seen as a complicated and time-consuming process by lenders and not a preferred option. It is now the first choice of most financial institutions seeking to rectify the millions of home loans that are currently in default. If a borrower is unable to pay his mortgage and the only feasible solution at hand is foreclosure, a short sale enables lenders and borrowers alike to mitigate the damage and cut their losses.
Given the real estate market’s unusual condition, the amount of bank foreclosed homes and the expectation that it will likely remain in flux for the foreseeable future, short sales will certainly remain a viable alternative for financial institutions and mortgage servicers alike. It an economy where both industry and individuals are asking themselves how they will be able to stay afloat, it seems possible that lenders indeed found a way to make a profit from the use of short sales.
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