Short Sale May Work to Contain Bank Foreclosure Listings

by Peter Vernon on Foreclosure Help

Preliminary results of a market study showed that a growing number of troubled homeowners have saved their properties from bank foreclosure listings through short sale.

Short sale is being pushed as an alternative to repossession for distressed homeowners who want to avoid the complex foreclosure process and move out of their homes without doing any long-lasting damage on their credit history.

And short sale is fast creating its own niche in the real estate market in Dayton, Ohio. According to industry experts, short sale has started to become a growing market segment due to the effects of economic and housing crises, with the addition of medical problems, job loss or divorce.

Through short sales, distressed homeowners facing the possibility that their homes will be placed on bank foreclosure listings may limit the negative effect on their credit history and may easily and quickly become eligible to purchase another property.

On the part of lenders, short sale may prevent them from collecting the full unpaid mortgage due from homeowners, but they will be spared from the expensive costs of foreclosure and the added burden of maintaining and reselling the distressed properties.

Early this year, short sales accounted for 13 percent of the total home sales in Ohio, placing the state in the range of 10 to 20 percent reported doing short sales nationwide.

According to the National Association of Realtors, about one in every three homes on bank homes listings was sold through short sales and not through foreclosure auctions. Furthermore, the market trend indicated that an estimated 5,000 distressed homeowners in Butler, Greene, Miami, Montgomery and Warren counties could sell their properties through short sale this year.

Despite its potential to save homeowners from foreclosure, short sale has its own disadvantages such as less profitability, time consuming and the need for greater cooperation between lenders and distressed homeowners. This is especially true in cases where there are court-imposed deadline on the foreclosure.

Homeowners who opt for short sale are required to submit comprehensive information that will prove their financial difficulties to justify availing of a short sale. Most title companies determine the extent of homeowners’ liabilities, such as credit card judgments and second mortgages, by doing a background check on the property’s title.

Usually, lenders used net proceed figures to decide whether to approve a short sale to help homeowners avoid the trouble of placing their homes on bank foreclosure listings.