Why Do Banks Prefer Short Sale?

Banks as an institution are in the business of making money. They make money for you but mostly they are in the business for making a profit for themselves.

Recovering losses

With the slump in the market after 2007, it has been increasingly difficult to balance books. As more and more homeowners are finding it difficult to meet their mortgage payments, banks are incurring tremendous losses. Losing jobs, increasing expenditure is adding to the burden of homeowners and making its way towards loss for banks. After examining all the avenues letting go of the house to recover losses both for the bank and the borrower seems to be the only solution. If an individual is defaulting on payments, banks have to recover their losses the best way they can. Out of the various possible options short sale and foreclosure are two ways the bank can recoup its lost money.

Why Short Sale

Let us be clear that the bank does not want to own your house. Its sole goal is to get its money back. Bank short sale is a fast process both for the homeowner and for the bank. Banks are preferring this alternative these days due to many reasons. Since the primary concern is money, if a bank gets an offer close to the fair market value of the house, the bank will prefer to sell now rather than go into foreclosure. There are many reasons for this which are discussed subsequently.

Time

The entire process of foreclosure comes with many long drawn out legal issues depending on the concerned State. Foreclosure is time consuming, as in certain states the whole legal process takes months to complete before bank can actually foreclose a property. Moreover, Banks have to hold the property for some more time to grant homeowner time to reclaim the property as is the rule in some states.

Costs

The process of foreclosure also incurs additional costs for the bank. These include processing fees, pending taxes and home cleaning and utility bills which may be due. After all this is over, the bank does not want to retain the house but to recover its money, has to sell the house. For this, they may have to hire an agent and list the property for sale. This incurs additional costs to the already increasing losses.

Credit scores

Above all this is the fact that foreclosure carries a stigma of its own. If a bank is found to be foreclosing too many properties it may lose its credit rating and may seem like a failure. Also if the area has too many properties being foreclosed the market value of the houses may fall further incurring more loss to the bank in long term. With most banks, a foreclosure also means that the homeowner will lose his credit scores and will not be able to purchase another property on loan for as much as 10 years, in some bank, thus limiting future business for the bank. The borrower may be unable to meet his loan obligation currently but that does not mean he will not be able to financially rebuild himself and want to own another property. Hence, bank short sale is a better option where credit scores are concerned for both parties involved.

Short Sale

This is the reason that if the bank has a good offer for a short sale which is close to the market value they will likely short sale the property rather than foreclosure. As the bank equates time with money, the fast process of short sale is much more interesting to the bank. Thus more and more banks now prefer short sale.