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Banks Permitting More Short Sales



According to Hope Now, a group that helps homeowners in jeopardy of losing their homes to foreclosure, the robosigning scandal that slowed the pace of foreclosures over the past year-and-a-half had an interesting side-effect. Lenders have become much more open to the idea of short sales, where the borrower is allowed to sell the home for less than what they owe on the mortgage. Both foreclosures and short sales increased from 2009 to 2010, but while short sales continued that decline last year, rising by 26,000, the number of foreclosures fell by 255,000.

Short sales and deed-in-lieu of foreclosures, in which the lender essentially assumes ownership of the house as payment for the mortgage, lower property values and wreak havoc on the borrowers' credit scores just like foreclosures, but to a far lesser extent. If a delinquent homeowner loses his home, a short sale really is the least painful way it can happen. Homeowners are allowed to stay in the home while trying to sell it, and it's a much quicker process than a foreclosure so the borrower can begin rebuilding his credit score sooner.

According to RealtyTrac, a real estate research firm specializing in foreclosures, the average price for short sales during the second quarter of last year was $192,000, 17 percent below the average price for foreclosures in that period, $164,000. In addition, foreclosures also cost lenders more in legal and administrative costs than short sales. In the mean time, financial institutions have downsized considerably in recent months, giving them less available staff to process foreclosures, so many prefer to allow a short sale rather than adding to an already massive backlog of properties to foreclose on.

January 7, 2012



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