Recently on our legal forum a user asked, “I lost my job six months ago. My wife lost her job last month. We purchased a home two years ago and can no longer make mortgage payments. I thought a short sale might be a great way to get rid of the home. The bank refused to consider a short sale and is now going to foreclose on the home. How can this be better for the bank?”
Short sale overview
A short sale allows the homeowner to arrange for the sale of their home for less than they owe on the mortgage. Although this can eliminate the foreclosure process for the bank and allow the homeowner to have the mortgage lien released without having to repay the full balance of the mortgage loan, the lender will not consider this option unless they determine it is advantageous for them.
So, no matter how much short sales are touted as a viable option for a homeowner who is underwater on their mortgage, the bottom line is mortgage lenders hate short sales. In fact, in some cases they will choose to foreclose on the property if they believe it is a better option and more likely to protect their asset.
When is a foreclosure better than a short sale?
As mentioned above, a lender may believe that a foreclosure is more profitable for them under certain circumstances. For example, in certain parts of the country there has been a strong resurgence in the real estate market. Mortgage lenders in these areas may determine that even though they must maintain, insure and sell the home, they may still make more money and have more qualified bidders at an auction, potentially allowing them to receive full payment for the outstanding mortgage loan.
Even if the foreclosure leads to a loss and the mortgage lender is not able to recoup the full balance of the mortgage loan, it’s historically been easier for the lender to explain these losses to federal or state banking regulators if there has been a foreclosure sale. This is because a deficiency is common in a foreclosure sale, and the lender did not give “approval” as they would have done in a short sale.
What do I do to avoid a foreclosure?
So, what are your options now that the bank has refused a short sale? First, consider trying to sell the home on your own. If the bank refuses a short sale there’s a chance that the real estate market in your area is strong and they believe they might get more money at a foreclosure auction.
Talk to a real estate agent. Find out if you could sell your home. If the sale price is less than the mortgage owed, consider other steps you could take to eliminate the deficiency.
Next, talk to your lender. Some lenders will offer loan modifications or reductions for a time, which might allow you or your wife to find employment. Remember, it’s important to be proactive and call your bank and address the issue.
Just because your bank refuses a short sale all is not lost. Take some additional steps to see if you can save your home or sale it on your own.
Latest posts by Beth (see all)
- Chapter 7 bankruptcy how to avoid filing a second time? - April 24, 2017
- Chapter 7 bankruptcy how do they determine if I can file? - April 19, 2017
- Receiving Supplemental Security Income can I file for bankruptcy? - April 12, 2017