A lot of people are dubious when they hear about short sales. Will a bank really lower the amount of money that they’re owed just so you can get out of your hard situation? Aren’t banks all about making a profit? Yes they are.
So why would a for-profit corporation knowingly take a loss on a loan that they made? It’s important that we answer this question because anytime that you’re working with somebody, you need to understand the motivation of the party involved. Otherwise you cannot approach them properly. Nearly every bank in the United States has a specific department for doing short sales and that should be evidence enough that they are motivated. Article continues below.
There are several major reasons why banks will choose to do a short sale. One of the reasons that they are motivated is because of the very nature of how the banking system is set up. When you are loaned money for a mortgage you might think that a bank is loaning out money from their own deposits, and that somehow the savings of ordinary people, from their out of their accounts, is actually being given, to you, in exchange for a promissory note and mortgage deed. But actually that is not the case. Typically a bank is able to loan ten times the money that is deposited with them. They literally create it out of thin air, and it is delivered through the Federal Reserve banking system.
One of the problems though is that although they’re allowed to do this crazy magic and multiply money, when loans start to go bad, suddenly they’re in big, big trouble, because they don’t have the cash deposits to back all of the loss incurred on the bad loans. The Federal Reserve has set up rules to regulate banks with bad loans so that banks who are making bad loans can’t continue doing so.
Basically for every $1 of defaulted debt on the books the lender must hold an equal amount in cash reserves and those cash reserves aren’t allowed to be magically multiplied. So not only will a lender lose money on the defaulted loan but they will also lose interest on the money they were not able to lend out because of the default. If your defaulted loan for $100,000 takes a year to foreclose they could lose interest on $1,000,000. One year of interest on $1,000,000 at 5 percent interest is $50,000 in additional loss. Even if don’t lose a cent of the principal balance of your loan they may have incurred a 50 percent loss.
Even if banks did not lose from their inability to leverage money during a loan default, a short sale would still make sense for them financially. By accepting a lower balance now, they avoid taking all of the accruing costs that get attached to the home and have to be paid as a home is foreclosed on. Some of those costs are, attorney costs, property tax’s, property maintenance, market depreciation, vandalism, weather damage, utility bills, real estate sales fees, asset manager salaries and the list goes on from there. These costs add up big time and give your lender motivation to get the deal done quick. It’s important that you keep all of these factors in mind as you dialog with your lender. You may need to remind your lender of some of these costs.
Visit http://estopforeclosure.com/HAFA to find out immediately if you meet the guidelines for a HAFA sale. The best way and most legal way to get paid at closing is to use the Obama HAFA incentive when you sell.
The strategies in this course are for educational purposes only. This information does not constitute legal advice. Some or all of the strategies to get paid via a short sale may not be legal depending on your situation. Always check with your legal counsel regarding your specific situation before implementing this information for yourself. If you have to hide anything from your lender in order to do complete a specific short sale with that lender you are likely committing fraud. Always disclose all aspects of your sale with your lender.
Next segment in the e-course: How Successful Will I be in conducting a Short Sale?
Article: http://estopforeclosure.com/2010/09/sscourse_segment3/
Video: http://www.youtube.com/watch?v=lf9Qt8BXfNg
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