Until recently, sellers have not had much luck in getting banks to approve short sales, or sale agreements that involve the bank agreeing to take an amount short of the loan balance as payment in full for the loan. Fortunately, sellers will likely have better luck because of new incentives from the Treasury Department.
Essentially, the government has agreed to absorb part of the loss whenever a bank agrees to do a short sale. According to the San Francisco Chronicle, “In May, the Treasury Department said it would offer a streamlined framework for short sales and incentive payments of $1,500 to homeowners, $1,000 to loan servicers and $1,000 to second-lien holders.”
A year and a half ago, very few people knew what the term “short sale” meant, but now it’s beginning to become a very well known term amongst home sellers that are finding they owe more on their home than it is worth to the bank. A short sale is when you need to get out of your home and you get the lender to agree to take the market value of the home instead of what you actually owe upon the loan, which could be higher than the market value.
Banks know that it’s cheaper for them to accept a short sale versus finding themselves having to foreclose on a customer. Foreclosures are often sold at a fraction of market value and result in costly legal proceedings, so banks are likely to take short sales when they believe the customer will otherwise be foreclosed upon.
Some of the biggest lenders have begun to hire specialists to process short sales. The practice has become so widespread that some lenders are now even taking short sale requests electronically.
