Short Selling: Avoiding Government Bank Foreclosures

by on Stop Foreclosures

Short selling a property to avoid government bank foreclosures is becoming a trend in the real estate industry. A few years back, short selling are unfamiliar words in the real estate industry. Now, it has become a byword in almost every household in the country, particularly in distressed houses.

In the investment world, short selling is turning to be a gold mine for many investors. Recession or no recession, investors are finding ways to repair run-down foreclosed houses and sell them for huge profits.

In the current economic downturn, the practice of buying, fixing and selling is given a name: short sales. The method involves investors finding distressed homeowners who are on the brink of government bank foreclosures. They will make cash offers to banks to purchase the distressed properties for low prices.

Usually, banks would agree to sell the houses to reduce their losses resulting from foreclosure costs, maintenance, taxes and legal fees. This means that banks also agree to accept the amount from the sale of the distressed properties as settlement payment for the mortgage owed by their homeowners.

On the part of homeowners, they are more than willing to sell their properties to minimize the damage to their credit record and avoid the complex process of foreclosures.

Industry experts said that short selling has always been an alternative for banks. But the current economic downturn fueled the growth of short sales. Experts said that in short sale deals, the winners are the people who have the means to take advantage of low property prices. As of May, both foreclosure and short sales accounted for 33 percent of the total existing housing market.

In the following two months, the figures dropped to 31 percent. Essentially, banks would review every short sale transaction to determine if the loss they are going to take will make more sense. Many banks have to answer to their directors and stockholders and need to reduce losses on foreclosure properties on their portfolio.

But lately, many homeowners who want to go the route of short sale to save their properties from foreclosures were complaining that banks are taking longer to respond to their requests. The Obama Administration knows about the shortfall and decided to offer financial incentives to lenders to encourage them to expedite their short sale process to help more homeowners avoid government bank foreclosures.