Why would a bank do a short sale?

(My Original Blog Post: http://ping.fm/tsY4e)

Ever Wonder Why a Bank would do a Short Sale? here is the answer....

 

Banks are not in the real estate business and what I mean by that is the banks do not want your house back through the foreclosure process, they don’t want to own the property, they want to only lend money. Banks are in the lending and interest business. The reason a bank is willing to do a short sale is that the entire foreclosure process in addition to other costs can equal $50,000+ easily by the time the bank sells the house they get back through foreclosure. The lender offering the property for less than the underlying debt, or anything under $50,000 discount could be worth it to them. For example, let’s say a home owner owes $200,000 on a house and it’s now worth only $175,000 and the seller found a buyer for the $175,000. In this scenario, there is $200,000 owing on the property, so therefore it would take a “short payoff” on the banks part, just to get the deal done. Sometimes lenders will even count the loan as paid in full even with the discounted difference, but not always, it’s a negotiable item. The Four parties that are involved in a short sale are:
1. The owner of the property that is being foreclosed upon
2. A buyer that is interested in the property; maybe an investor seeking a discount
3. The third party that is servicing the loan, the lender itself, or a servicing company
(Conventional, FHA, VA, Freddie Mac, Fannie Mae, etc.)
4. PMI- Private Mortgage Insurance company with the lender