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Short Sales Everywhere: Why Would A Bank Even Do A Short Sale?

12-1-2011

The simple answer is money. In most cases it's more profitable for a bank to accept a short sale than to allow a property to get foreclosed on. Banks can be very savvy though and if they feel you can come up with the money they might not be inclined to accept a discount on the loan.

Before a bank will consider shorting your loan they will determine if the numbers add up. Items they look at when making a decision is what did the BPO (broker price opinion) come back at? How many months behind is the seller in making the payments? Some banks won't even deal with you if you are current with your payments and some will. How much has the bank invested in legal fees already? What is the condition of the current property? If the property needs major work or that has problems a bank would rather do the short sale. They don't want to own those types of homes. Also what position is the lender in at the creditor line? If they are in the second or third position they will probably be more willing to allow you a large discount on your loan because if the home does end up foreclosing then they could walk away with 0. Also private mortgage insurance with the VA or FHA also factor into the decision making. How difficult is your state for foreclosures? How many bad loans does the bank already hold in your area and what's their exposure and risk currently? What is the likelihood the owner will file bankruptcy?

For banks they make decisions based upon a complex formula that revolves around simple business principles.

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