Foreclosure and delinquency rates are occurring in high numbers due to teaser-rate mortgages adjusting upwards after the housing boom. Higher taxes and insurance costs are making it even more difficult for borrowers to keep up with these payments. Now that prices have decreased, it leaves many owners in a big predicament as many of them have negative equity…they owe more on the mortgage than what the property is worth. When the borrower needs to sell, there is one solution…called a “short sale“.
A short sale is when the lender agrees to accept a payoff for less than the remaining balance and forgive the loan shortfall and will usually pay the seller’s closing costs including the Realtor fee. The loss is written off by the lender, a payment arrangement is made with the borrower in a form of a promissory note or lump-sum for a lesser amount (cash contribution).
A bank will accept a short sale since they do not want to own real estate. A foreclosure can cost a lender between $30,000 to $60,000. They will have to maintain the property, market it, pay for utilities, then spending money on closing costs. They would rather prefer to do a short sale which will generally cost them less than a foreclosure.