Upcoming Foreclosures

Why does Lenders prefer FORECLOSURE instead of SHORT SALE ?

Example:- There is a short sale property listed for $250K and I had put an offer for $220K. Most of the properties in that area are listed for $265K and I am sure they might be selling between $225-$240K. Now this property has 2 mortgages ( 1st $265K - 2nd 35K) and I am sure one of the lender will have to loose 100% or may be they both negotiate as how what piece of cake each one will get. 1) Why does a Lender move a short sale property to foreclosure ? What are the benefits for him ? 2) Does Lenders get more money for a foreclosure property ? How do they get more, lets say the same above property if they move from short sale to foreclosure, why would someone pay more for the same property ? 3) Does lenders make fast decision on foreclosure homes compared to Short sale properties ?

Public Comments

1. To answer your first and third questions, there are more people involved in a short sale compared to a foreclosure. In a short sale, there is: 1) The current homeowner/the seller and their agent 2) The primary lender 3) A possible secondary lender if there is a home equity loan 4) An insurance company if there is a PMI policy 5) and finally, the buyer. Also keep in mind that none of the first four listed want to take a loss. So not only is there a coordination problem, there is also a battle among the four as to which party will take the loss. When the home goes into foreclosure, the lenders, the homeowner (now former owner) and the PMI company are forced to resolve their issues and the primary lender takes ownership of the home. So now when the bank puts the home on the market, any potential buyers will only have to deal with one entity. On the second question, the home will sell for less. However, if there was a PMI policy then the insurance company will cover some or all of the loss. This is one of the reasons AIG needed a bailout.