Are Short Sales Getting Easier?

Jun 23, 2011

Courtesy KCM Blog

Short sales (where the lender agrees to accept less than the mortgage amount due on the sale of a property by a seller) have never been easy to complete. We are not suggesting that they now will be easy. However, there is mounting evidence that the banks are seriously favoring short sales over the option of foreclosure. Here is the evidence that has led us to this conclusion.

Banks Net More Money on a Short Sale

RealtyTrac’s latest data tells us that a short sale sells at approximately a 10% discount. A foreclosure sells at approximately a 35% discount. Obviously, the bank will net more by agreeing to short sale than they would by bringing the home to foreclosure.

Banks Are Beginning To Pay Short Sale ‘Bonuses’

In a recent article, HousingWire reported on a new program being instituted by CitiMortgage an affiliate of Citigroup:

CitiMortgage, is paying borrowers an average $12,000 after completing a short sale this year.

Justin Rand, the senior vice president of loss mitigation at the bank, said servicers are putting more of an emphasis on streamlining the process and pursuing a short sale ahead of foreclosure.

There is no better proof that some banks prefer a short sale than the fact that they are paying bonuses to homeowners who pick that option.

The Numbers Already Show an Increase in Short Sales

In the same article mentioned above, CitiMortgage said the percentage of troubled loans that now go to short sale route have quadrupled (4% to 16%) in the last two years.

And in a separate article, Bank of America reported they completed over 95,000 short sales in 2010 which more than doubles the number in 2009. BofA also reported that they completed more short sales than it sold previously foreclosed homes every month for the last year and a half. Last month (May), BofA completed roughly 9,000 short sales compared to 7,000 foreclosures sold.

Bottom Line

There are many advantages to a short sale over a foreclosure for the seller (they get to plan their move, there is less embarrassment with friends and neighbors, the negative impact on their future ability to purchase is much less severe). Luckily, it now seems that the banks also think it is in their best interest to pursue a short sale.

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