Question:
Can defaulting loan be a positive or a negative?
How long can any business operate with too much debt?

Some banks are required to keep cash equal to 2 to 6 times the value of each REO in reserve, which they are unable to lend.

Banks primarily agree to short sales to avoid foreclosures. The average expense of foreclosing on a property exceeds $30,000, in addition to any fees associated with the REO process.

Banks also accept short sales when the borrower doesn’t qualify for loan modification.

Lenders/investors generally dislike short sales, but they consider that the cost of a foreclosure is usually a far more time consuming and much more costly. In the current market, there is a strong incentive for lenders to liquidate bad loans as quickly as possible.

Short sales are generally faster, easier and cheaper than foreclosures. If a lender pursues foreclosure the institutions risks the decline of property value during the the foreclosure process. Once the bank takes ownership, the property may be deteriorate or be vandalized, due to vacancy. All these risk reduction in potential net proceeds from foreclosures.

There are major benefits to the lender for completing a short sale. The lender does not need to go through the lengthly and costly foreclosure process. The cost to foreclose can run 40-50% of the loan amount. The toxic loan will be removed from their portfolios. The lender does not need to incur the costs associated with listing and marketing the REO if foreclosed upon. The lender does not need to spend the time or expenses to repair and correct any defects the property could have, prior to marketing the REO. A short sale will eliminate the need for the bank to go through the process of eviction.

Short sales have excellent potential benefits for sellers also. The negative effect on the borrower’s credit score will be less than if the property was foreclosed on. Additionally, the seller can remain in the home through the short sale negotiation process. The goal of a short sale is to obtain written confirmation of the recordation of release or satisfaction of mortgage from the lender upon receipt of fund. There are no guarantees that the lender(s) will accept a discounter amount as payoff, no matter how well or good the offer may be.

Short sales can be a lengthy and can fail. It is important to hire a qualified REALTOR® to assist with the complex, and unpredictable issues that arise. It would also be beneficial to consult with a tax consultant, accountant and attorney. The Klinger Real Estate Group does not refer counsel, we do recommend that you seek qualified professionals for each field.

If consulting an attorney, sellers should be scrupulous in selection of a foreclosure specialist. We suggest you ask the attorney the following questions:

• How many short sales have you done?
• How many were successful?
• What will I owe if the short sale is not accepted?
• Do you charge billable hours or a flat fee?
• What is the fee for billable hour/ or flat fee rate?

If the attorney charges by billable hours, their fees could add up quickly while waiting on hold for the loss mitigation department to answer the phone.