For 5 years now we’ve been a huge champion of the short sale. We’ve been banging and banging away at the banks because they didn’t share our opinion.
There has long been an institutional reluctance among our nation’s lenders to embrace the short sale, but it appears they are finally coming around.
According to Corelogic’s most recent numbers, short sales accounted for 9 percent of all residential transactions last November.
In January of 2008, they represented only 2 percent. That’s a 350% increase in the amount of homes sold at short sale.
It may have taken them a while, but the banks are finally letting go of the arcane notion that foreclosing on a delinquent borrower is always the best option for them.
The short sale has and will always be a much better alternative for the banks. In many cases, when modification isn’t an option, a short sale is better for the existing homeowners as well.
It’s good for the banks because it’s the fastest way to bring down their massive backlog of foreclosures.
Now that more and more foreclosures are lingering in the courts, banks now realize its the simplest way to get these homes back on the market, sometimes in just a few months.
They may not get back the full value of the home but their losses are about 15 percent less than if the home was foreclosed on, according to Bloomberg News.
It’s good for the borrower because they can walk away, legally, with little or no debt at all. Some banks are even offering cash incentives, as much as $35,000 in some cases, to entice homeowners to sell back their homes.
It’s win-win! In fact, it’s better than that. It’s win-win-win! The stress, the headaches, the months and years of inaction, can be put to bed with a short sale.
A short sale, in short, is quite simple. A distressed homeowner can sell their home for less than what they originally owe. Banks will often agree to not go after a deficiency judgment if borrowers agree to a short sale.
JP Morgan, who approves about 5,000 short sales a month, is giving the largest incentives, but more and more lenders are now agreeing to them.
There’s a ripple effect here that’s good for everyone. The seller gets to leave foreclosure hell once and for all, and can get money to help them transition into a rental and start fresh.
A new family gets to buy the home at a nice discount, and the neighbors don’t have to live next to an abandoned home or deal with having a non-caring faceless entity, namely the banks as their neighbor.
The lawn guy, the bug guy get back to work, and the new owners buy new furniture, new drapes, and suddenly the economy is bouncing back!
Banks might have thought foreclosing was the right idea. It wasn’t then, it isn’t now, and it will never be.