Banks are stepping up their efforts to persuade struggling homeowners to accept a short sale instead of going through a costly foreclosure, according to new reports, with some banks prepared to offer borrowers up to $35,000 to ‘get out of jail’ earlier.
The report, first published in CNN Money, says that many homeowners have been taken by surprise at their bank’s desire to push through a short sale.
Elizabeth Weintraub, a realtor in Sacramento, California, told CNN Money that most homeowners are skeptical of their bank’s offer at first. That skepticism is quite understandable she claims, as many homeowners have previously been rejected in their efforts to secure a loan modification.
“Then they call and say, let us give you some money,” Weintraub added.
So why are the banks so keen to give away all this money?
Apparently, foreclosures are getting to be just too damn expensive for the banks, so much so that it’s often cheaper to pay homeowners to proceed with a short sale. Furthermore, processing a foreclosure isn’t that easy any more, with many homeowners these days willing to fight tooth and nail in the courts, delaying any action for months or even years.
The problem for banks is that the longer these cases are dragged on, the more expensive things become. Homeowners typically cease all payments on their mortgage, their property taxes, and even household maintenance. As a result, the home slowly deteriorates and quickly begins to lose value. By the time the dust has settled and the bank takes possession of the home, the property may have lost thousands from its pre-foreclosure valuation.
As Tom Kelly, a spokesperson with Chase Mortgage tells CNN Money, there are three choices for banks. The preferred choice is loan modification, but if that isn’t possible then a short sale is usually faster and much more efficient than foreclosure, which is increasingly becoming the least favorable option.
For those interested in a short sale incentive, the chances of receiving such an offer will depend on several different things, including who you bank with and where in the country you live.
Homeowners who bank with Wells Fargo may be in luck. The bank is quietly offering such incentives in a number of states, mainly those which are known for their lengthy foreclosure process, such as Florida. Wells Fargo have typically been offering around $15,000 to homeowners to agree to a short sale.
Bank of America were running a pilot program in Florida last year, paying out between $5,000 and $20,000 to those who agreed to short sell, although this program has now expired, and it remains to be seen if it will be introduced in other states.