Why short sales are good for banks

As we are entering into possibly another downturn in the real estate market, it's more important than ever to understand why a "short sale" may be in the banks best interest.

First and foremost, the foreclosure process is expensive. An example of some of the fees the bank will incur during the foreclosure include:
- Legal fees
- Property acquisition fees
- Clean up fees
- Property maintenance fees
- Appraisal fees
- Real estate agent fees
- Property settlement fees
- Loss of home value because the bank has taken possession of it

These costs can often sky-rocket to 10s of thousands of dollars.

The next reason why banks may accept a short sale is to get a "bad" loan off of the books and take the write off. Bad loans go against a banks balance sheet and to many of them scare investors away. While not 100% of short sales are going to be approved, the banks actively want to approve short sales and are willing to work with most borrowers who are not able to modify or catch up their loans.

The third reason why banks accept short sales is because homeowners in foreclosure don't keep up with maintenance on their homes. This lack of maintenance and the very real possibility of extensive damage being done to the home after a foreclosure can cost banks in excess of 20% to 30% of the home's value.

In a soft market like the one we are experiencing, it is often in the banks best interest to move the asset without completing the foreclosure process. Ever deal is a different but often times the bank ends up losing LESS money by approving a short sale.