$35,000 : The Going Rate To Get Someone Out Of Their Home?

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One of the many problems with the real estate and lending business in the current environment is the number of months it takes for a short sale to be processed. Either the owners drag their heels, or the bank/investor who has to approve the sale does not have the correct policies and procedures in place to accommodate the sale.

Now, in an effort to move troubled mortgages off their books, banks have begun offering more than $35,000 in cash to delinquent homeowners so that they can sell their properties for less than they owe.

These short sales are not looked upon kindly by lenders, but banks have decided that they’re both quicker and less expensive than foreclosing, a process that has slowed down in response to recent legislative action. In addition to offering cash incentives, banks have been pre-approving details, streamlining the process of closing and forgoing their right to pursue unpaid debt in the hope of getting through some of the backlog.

At this point, more than 14 million homes are in foreclosure, and the pending repossessions that have accumulated are standing in the way of the housing market’s recovery and economic improvement.

Often borrowers opt for load modification, which reduces the monthly payment and principal such that they can avoid foreclosure. Sometimes homeowners facing foreclosures are able to live rent-free for years before the home is actually foreclosed. Banks, then, have to offer a substantial cash benefit to sell short, and $35,000-plus appears to be the going rate to get someone out of their home.

A number of banks in Arizona, California, Florida, New York and Washington are now offering cash incentives. The largest incentives are extended by JPMorgan Chase, who approve about 5000 short sales monthly, many of whom have include settlements of $10,000-$35,000 each.

As for how much time short sales actually save banks, the practice can reduce the time it takes to unload a property by a year or more. On average, short sale transactions, from listing to sale, take from 123 days. Compared with foreclosures, which are often drawn out affairs, this is quick and certainly in banks’ interests to encourage.