Short Sales – How you can benefit from the current housing crisis
Posted by executivelounge on April 30, 2008
Bank of America (BofA) announced that as a result of its acquisition of Countrywide, the combined company would work to modify $40 billion in troubled mortgages in the next two years — about 265,000 loans.
Across the country, banks are taking drastic measures to prevent pending foreclosures. Through a process called a short sale, banks are taking their losses prior to properties going into foreclosure. In essence, if a homeowner can no longer afford to pay their mortgage, the bank will agree to a sale and
accept proceeds less than what is owed on the mortgage. This usually occurs when there is not enough equity in the home for it to be sold at a price where the bank can recoup its loan. Often times, these homes are sold at significant discounts in order to liquidate them quickly. Most of the times,
rather than going through a lengthy foreclosure proceeding which can yield as little as 30 cents on the dollar after all is said and done, banks opt for a quicker sale that may yield 50 to even 70 cents on the dollar.
Why such a huge disparity? The significant reduction in what the bank gets back stems from the fact that they have to list the property and maintain it until it gets sold. There are also Federal Reserve requirements that must be met when a bank takes back a property which eats into their liquidity. Let’s
also not forget the public’s perception when a bank is taking back properties for bad loans.
But how do short sales help the consumer? If you’re a seller facing foreclosure, a short sale can prevent the embarrassment from a public foreclosure notice as well as save your credit for having a foreclosure reported. And of course if you’re a homebuyer, you can get a steal and have instant equity to build from.
If you would like to learn more about short sales and how you can potentially benefit, please contact us at info@eraexecutives.com.
