Are lenders of foreclosed homes willing to short sale?
The question: Are lenders of defaulted or foreclosed homes willing to short sale?
The short answer is…Nope…not really.
To my surprise, after reading a number of agent and buyer emails, lenders are showing limited interest in accepting “short sale” offers.
Lenders Hate Short Sales
To explain quickly, a short sale, is asking a foreclosing lender to accept an offer to “payoff” his mortgage with a sale at a price that is “short” of the actual balance to help the owner out of his foreclosure.
One would think with all the pressure on the lenders to “work with” people, they would readily accept especially in cases where the value of the home is demonstrated to be less than the lender’s mortgage balance.
Not true.
Taking a short sale assures the lender a loss without the aid of mortgage insurance to make them whole again. Remember the vast majority of first mortgages have a mortgage insurance policy that pays off the lender in the event of a default should they not get all of their money after re-marketing the home.
Now with a bunch of government funded programs coming down the pike, my guess is lenders will be even less likely to negotiate a short sale.
Mortgage holders historically are the least likely to work with folks in foreclosure. But now during a crisis, you’d expect them to shed their old ways and lend a hand(forgive the pun).
No, it’s simply not happening. The loss mitigation departments are currently so over-worked and reviewing a short sale application takes an enormous amount of time and effort.
To add insult to injury, lenders are finding a growing number of short sale requests are including a disengenous BPO (Broker Price Opinion) attempting to establish a lower than market value for the home.
Many lenders are just ignoring short sale offers preferring to simply pursue foreclosure or work with the borrower on a loan modification. With a loan modification, lenders feel eventually they will get all of their money.
Lenders know time is on their side if they can just hold out until the market turns. With a loan modification or what is really a “trial mod” in most cases, the lender is using time to their advantage and still reserves the right to foreclose which will allow them to collect from the mortgage insurance company should they incur a loss.
Great question…
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Tags: Foreclosure • Loan Modification • Loss Mitigation • Short Sale
I own some rental properties. I am stopping payments on 3 condos in MS ( which is a non recourse state). There is no second mortgage because I used an equity line against my primary to pay off all of my rental property seconds. If this property goes to foreclosure does Wells Fargo ( first mort.) have any further recourse to collect on the first mortgage? Thanks!