What makes a bank decide whether to take a discount on a defaulted mortgage or not?
There are a number of factors that go into a lender's decision about whether (and by how much) to discount a loan gone bad.
The first step in getting a particular lender to consider your short sale offer is to have all your documents in order . Before the lender will even discuss an offer with you, you'll need a signed
purchase contract and a letter of
permission from the seller allowing the bank to discuss the loan with your realtor or attorney. Most banks will assign a negotiator to the loan. And there's usually only one person within a given institution who has the power to take offers to the board, so discussing your offer with anyone else is a waste of time.
Once you have all your papers in order, and are talking to the right person who can make the decisions regarding your short sale, there are a number of other factors that could affect how open the lender is to your offer. One is where the loan is in the foreclosure process. If the borrower is just a few months behind—or if the auction is happening in 3 days—the bank might not be terribly motivated to take a major discount. In the first case, they may assume that they can work out a payoff with the owner: in the second, they've already invested a great deal of money in legal fees, and may feel that it's better to take their chances on getting the property back and reselling it on the open market.
The condition of the property is another major issue with some lenders. Most lenders are hesitant to take back a property that needs major repairs, or that has building orders violations. In other words, the worse the condition of the house, the better the chance that the lender will negotiate.
The requirements of the lender's private mortgage insurance company or of FHA and VA insurance also influence its decision about how much to discount, as does the housing market, difficulty of foreclosure in a particular state, number of bad loans the bank is dealing with, likelihood that the owner will declare bankruptcy, and many, many more variables. So bottom line, there's no short answer and every lender is different.
We will present all offers and negotiate directly with the negotiator assigned to your loan. You will not have to discuss anything with the lender.
A short sale is the lesser of two evils. If the homeowner cannot afford to remain in premises, the lender will repossess the property through foreclosure proceedings. A short sale allows the homeowner to save on many months of stress, embarrassment, aggravation and uncertainty.
When considering whether to undertake an Illinois short sale, it is very important as a seller to understands the benefits when compared to foreclosure.
One advantage to a short sale is that it is a private proceeding; unlike a foreclosure which is public in nature.
This is not to mention the daily phone calls from the bank inquiring as to why the homeowner is missing their payments. Often the bank will attempt to reach the homeowner at work where they will initiate conversation with anyone who answers the phone, including the homeowner's coworkers or boss! Remember, theyare attempting to collect hundreds of thousands of dollars and will use anything within their power to reach that goal.
In a short sale transaction this disturbance can all be completely avoided as the homeowner should instruct the lender to contact our attorney who will act as a buffer between you and your persistant lender.
A short sale is typically faster and less expensive than a foreclosure for the lender. Lenders may accept short sale offers or requests for short sales even if a Notice of Default has not been issued. Given the extraordinary and devastating number of losses that mortgage lenders have suffered from the 2009 foreclosure crisis, they are now more willing to accept short sales than ever before. This presents a real solution for "upside-down" borrowers who are struggling with their mortgages.