Why do a Short Sale?
Preventing foreclosure is one of the primary reasons for choosing a short sale. Usually when a financial hardship or other circumstances arise,
homeowners find it difficult to keep their loans current, and eventually their homes go into foreclosure. In order to preserve their current credit
history and avoid the detriments of the foreclosure process, homeowners resort to the short sale to resolve the monetary deficiency that goes with a
discounted payoff. Along with these come other advantages not only for the homeowner, but for the buyer and lender as well.
The Reality of Foreclosures
By virtually any measure, from a credit file perspective, a completed foreclosure is the worst thing one can have in their credit file. One thing to keep
in mind is that recovery time is one of the biggest differences between a short sale and a foreclosure when it comes to credit.
Foreclosure is expensive. Estimates of actual lender cost to foreclose are usually pegged at about $50,000+/-.
Government estimates on the cost of foreclosure generated by HUD for all loan types is just under $50,000.
Much of the cost is legal and administrative.
Attorney, filing, posting, and trustee fees begin to accrue early in the default cycle, and continue until the mortgage default is resolved.
Time is of the Essence
Time is the biggest killer when it comes to the foreclosure process. As each day passes, the cost of not resolving the delinquent mortgages is 4-5
times higher than the cost of servicing a performing loan.
With servicing fees generally taken out of collected payments, there is no income to offset the servicing expense. Even worse the servicing contract
may call for the servicer to advance the “trust” principal and interest payment, which is the case frequently with securitized mortgages.
Courtesy of Gabriela Hanson, Short Sale Negotiator