Why Does a Bank Accept a Short Sale?

In most cases, a bank accepts a short sale in order to reduce the amount of losses that can occur when a mortgage goes into default. Ultimately, if the mortgage goes unpaid for an extended period of time, most mortgage companies will foreclose on the property. When a bank must foreclose on a property, they must hire a law firm to handle the legal proceedings, sometimes a property preservation company to winterize the home if vacant, oftentimes they must add in a forced insurance policy to protect the home in case of fire and many other fees and expenses. Plus, if the property is not purchased at the foreclosure auction sale, which happens less than 10% of the time, the bank becomes the owner of the property.

Although to most people, owning real estate is an asset, to a bank, owning real estate is a liability. Banks make money from the monthly interest payments that are paid to them. A vacant piece of real estate is a liability to a bank. In addition, excessive foreclosures on their books can restrict their ability to lend money. When all of these factors are added together, it becomes easier to understand why a bank would accept a short sale.

However, banks do no always accept short sales. Banks typically only accept short sales if it is in their best financial interest to do so. Oftentimes, if the short sale offer is far less than the amount the bank feels they would get by taking the property to foreclosure, the bank will gladly take the property to foreclosure over accepting a low ball short sale offer.

What causes the largest amount of frustration in getting a short sale offer accepted is when the bank has an inflated view of the real value of the property. Since most banks are in office buildings hundreds, if not thousands of miles away from the property, they must rely on third parties like real estate agents and appraisers to be their eyes and ears and sometimes the person the bank hires to do the property evaluation gets the value all wrong. When this happens, the bank may have an inaccurate view of the value and therefore, not accept what is, in reality, a very reasonable short sale offer. Although not for this lesson, that is why a bank would not accept a short sale. The reason why a bank would accept a short sale is to lose less money than if they took the property to foreclosure.

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