The Queen of Short Sales

Why Lenders are Willing to Accept a Short Sale

September 23, 2009 | Lenders, Negotiations, Short Sale

When a Lender has exhausted all measures in their attempt to get the homeowners to make payment and get current on their mortgage, the lender has no other alternative but, to foreclose on the property. For the lender this costs thousands of dollars. The lender will have to pay an attorney to handle the foreclosure, but they will also need to hire an real estate agent to perform an appraisal on the property.

When a borrower defaults on their mortgage, the foreclosing lender considers the property a “non-performing asset”. Federal banking regulations require that the lenders hold money in reserve to cover the expenses associated with the non-performing assets in their inventories. Lenders make their profits by charging interest on the money they have loaned out. They are unable to lend out the money that is being held in reserve which reduces their profits.

Vacant properties are often the target of vandalism. Vacant properties are not properly maintained. In areas with colder climates, the winter months pose an additional threat of frozen pipes unless the property has been winterized, yet another expense for the lender. While bank owned properties remain vacant their condition and values continue to decline.

The lender is responsible for the monthly expenses for the maintenance of each property in their inventory until the property is sold. These expenses include homeowner’s insurance, liability insurance, property taxes, lawn care, snow removal, real estate appraisal fees, real estate broker fees and more.

A lender’s ability to borrow money from the Federal Reserve to make loans is based in part on the lender’s performance history. Lenders with a high number of foreclosures risk having the Federal Reserve reduce the amount of money they are able to borrow. The Federal Reserve may also charge a lender with a high number of foreclosure a higher interest rate on the money they borrow.