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Fri, 18 Jun 2010 07:44:34 AM

Banks Can Still Foreclose After Arranging Short Sale

The foreclosure vs. short sale debate may be moot for some homeowners - particularly those in a race against time with their lenders. According to reports, even after a short sale has been arranged, a lender can still choose to foreclose if the offer presented doesn't make financial sense. Needless to say, it puts more pressure on borrowers who choose the short sale as a foreclosure alternative, expecting to avoid or at least reduce the damage.

Foreclosure and short sale costs: the lender's view
A bank usually accepts a short sale after if the losses they incur are less than that of a foreclosure. On average, foreclosing on a home costs the lender about $58,000, taking into account the courier fees, attorney fees, and other costs that add up in the foreclosure process. They compare these costs with the amount proposed for the short sale, and if they stand to lose less by foreclosing, the borrower will likely end up with a foreclosure.

Time matters
Lenders who accept a short sale typically set a time frame within which the borrower must close the deal. However, there isn't enough time for most borrowers to make the proposal, get approved, list the home, and find a suitable buyer within this time frame. And since the foreclosure clock still runs in between application and approval, there’s often a good chance that the bank will foreclose even if the short sale has been arranged.

Short sale obstacles
Another factor that makes the foreclosure vs. short sale question difficult is the condition of the home. Many homeowners are unable to get good offers on their home because of structural issues that lower its value. And since most short sale sellers are already in tight financial situations, few are able to make repairs that can pull up the asking price. As a result, the best offers they get still don't make the cut for the lender. Eventually, after months of waiting, they simply get notices from their lenders saying they are opting for foreclosure instead.

What can be done
Foreclosure and short sale experts say the best way to improve one's chances is to work with a capable agent. A good short sale agent will have access to a wider pool of potential buyers, better negotiating skills, and more resources to market the home efficiently. It may cost borrowers more at the outset, but considering that foreclosure is a real risk, it’s worth the price for the majority of homeowners.


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