Quite frankly, the lenders/banks prefer homeowners to short sale their homes as opposed to a foreclosure because the expense is far less. The banking industry is controlled by the Federal Reserve and when there are large amounts of non-performing mortgages, they will either limit or suspend the funds that are provided to the banks.
For this reason it is more acceptable to the Federal Reserve for banks to recuperate a partial amount of money rather than lose its entirety. Therefore, short sales are usually granted by most lenders/banks under the following conditions.
- Loss of job and income with no short term possibility of improvement in financial condition
- Long term illness
- Loss in market value of the property
- Homeowner has missed 3 or more mortgage payments
Most lenders will offer 2 different options prior to approving a short sale. Therefore, it is imperative for you to find out which option they have made available to you.
- Payment in Full without a Deficiency Judgment. This judgment is the most desirable because it means that you, the homeowner, will not be left with paying any unpaid/remaining balances of the loan amount once the property has been sold as a short sale. Most states do not allow deficiency judgments, please click here to verify your states position.
- Deficiency Judgment. When using this short sale option, you will be responsible for paying any unpaid and remaining balance of the loan amount that was not covered in the short sale.
In conclusion, the lenders are willing to let you short sale your home because they must attempt to recuperate some of their invested funds to avoid suspension and limited borrowed funds.
Also, the deficiency judgment will allow them to recapture the full loan amount from homeowners that live in states that allow this process. If the homeowners are not able to meet their financial mortgage and liability obligations, then they will have no recourse but to submit to the underlying option.