It sounds weird that a lender would
approve a short sale when a homeowner is current on their payment. There
is a logical reason that they do it. Let me explain.
Let’s look at a person who owes more
than their home is worth and moves for a job transfer. Their lender does not
approve their short sale.
The lender tells them, “We granted
the loan thinking you were a credit worthy borrower. We expect you to repay us
every dime”, The borrower moves out of town and rents out the house.
Unfortunately the tenant only pays
60% of the mortgage payment. So the homeowner has to come up with $800 every
month. They manage to do that for a year. Then, the tenant moves out.
Unfortunately, the tenant didn’t
keep up on the maintenance of the house. Most tenants don’t treat the house
they are renting as well as a homeowner would. Why should they?
After all, it’s not their own home.
Because of that, the home needs $5,000 in work before it can be rented again.
The carpet need to be replaced, the interior needs to be repainted, and the
yard mowed.
The original borrower who moved out
of town doesn’t have $5,000. What happens next? They try to rent the house in
its current condition. No one wants to rent it.
The homeowner manages to pay the
mortgage for a couple more months. Then, they stop paying because they can’t
afford to do so. 12-18 months later the lender forecloses on the house.
They sell it as a bank owned
property. The house sells for less than it would have back at the beginning.
This is because it sits empty for 18 months while the yard gets overgrown and
people vandalize it.
Someone throws a brick thru the
window, which allows rain to get inside and mold to grow. As you can see, there
is a financial advantage to the lender is approving a short sale for a job relocation.
Lenders aren’t stupid. They hire on
smart analysts to crunch the numbers and analyze these type of situations.
These analysts have lots of data to review from past loans already on the
books.
They can look thru 10, 20, or 100
files and see what would have reduced losses in the past. The insurance
industry has number crunchers called actuaries that do a job similar to this.
Their job is to take a risk and
affix a cost to it. Insurance and banking are similar in some respects. They
both analyze risk and try to affix a solid cost to it. They also attempt to
reduce the cost of each risk.
That is why lenders allow short
sales. They have analyzed all the costs of a short sale versus the alternative.
When their analysis shows a short
sale will cost less than the alternative, then they will approve the short
sale. Thinking about a short sale?
I can help you short sale your
property and get back on your feet. Send me an e-mail at tom.mack@exprealty.com.
I will contact you for a free consultation.
When we talk, I will explain how the
process works in detail and answer any questions you may have. Or, if you
prefer, you can call me at 407-359-2220
Discover how other sellers
successfully completed a short sale and request a free consultation by clicking here.
No comments:
Post a Comment