For sellers, short sales are a favorable alternative to entering the foreclosure process. In a short sale, homeowners agree to sell a house for less than the amount owed on the mortgage loan. This type of sale requires the lender to approve of the deal. In addition to helping the seller protect their credit, short sales can be a great option for buyers as well.
Not only can foreclosure be devastating to a homeowner, but they can also be costly to a lender. The lender must pay all costs associated with the foreclosure, including those associated with evicting the current owner, as well as any administrative costs. Once the house is empty, the lender must then pay for any repairs and maintenance costs while the house is on the market. To avoid paying these expenses, lenders may agree to sell the property for well under the value of the loan. This presents a great opportunity for buyers to secure a great deal on a home they would otherwise be unable to afford.
Even though a short sale requires the bank to agree to sell the home for less than the value of the current loan, short sales often represent the most cost-effective option for the bank. Rather than continue losing money, or wasting more money on a foreclosure, many banks offer buyers of short-sale properties favorable financing terms to make the sale more attractive. The lender may offer a low interest rate or other buyer-friendly terms to get the property sold and avoid further expenses.