Short Sale vs. Foreclosure Negotiations

[Mawesome Sauce]

I know the difference between a short sale and a foreclosure, but from the lender perspective, are they willing to negotiate more on one vs the other? Since the lender is already taking a hit on the short sale, would they be willing to negotiate even lower on the price? Just how much do they want to avoid the foreclosure process? Since it's obvious property values will fall more into early next year, I'm wondering if lenders are willing to take huge cuts just to avoid the foreclosure process and have further markdowns from lower market prices.

 

[Danimal]

Lenders will take a hit either way. In fact on avg FC costs lenders more money. Believe it or not, FC is the least desired option since lenders have to go through FC process which costs them lots of money, time and resource ( attorney fees, home owners vandalize the home, time to complete FC process especially in judicial state like california, borrower BK which can put FC on hold….). After FC then they have to go through REO. Short sale is one of the options (deed in lieu, forbearance…) for Loss Mitigation. Trust me, lenders always prefer Loss Mit option before they opt for FC.

I work for company that builds sw for default service. I talk to lots of lender managers. They all always try to do LM before FC.

 

[Mawesome Sauce]

Lenders will take a hit either way. In fact on avg FC costs lenders more money. Believe it or not, FC is the least desired option since lenders have to go through FC process which costs them lots of money, time and resource ( attorney fees, home owners vandalize the home, time to complete FC process especially in judicial state like california, borrower BK which can put FC on hold….). After FC then they have to go through REO. Short sale is one of the options (deed in lieu, forbearance…) for Loss Mitigation. Trust me, lenders always prefer Loss Mit option before they opt for FC.

I work for company that builds sw for default service. I talk to lots of lender managers. They all always try to do LM before FC.

Thanks. Just wondering if low balling some short sales that look in terrible shape and will need repair work worth it.

 

[Liar Loan]

Thanks. Just wondering if low balling some short sales that look in terrible shape and will need repair work )worth it.

It might, but usually short sales are already marked down to account for this.

At the end of the day, the investor in the note will be the one that decides. For Fannie/Freddie/Ginnie-owned loans, there tend to be pretty structured procedures that need to be followed by servicers. Saving the homes of borrowers will always take precedence, but short sales are the preferred workout if that's not possible. Foreclosures are a last resort due to the poor optics of the government foreclosing on homes.

For privately held securities (mostly jumbo mortgages) there might be more wiggle room depending on the objectives of the investors in the securities. It should be to maximize their Net Present Value, but sometimes politics between tranche holders can get in the way of that. Time value of money is important here.

For mortgages held on balance sheet at banks, it will really depend on the bank's capital position, their perception of risk, and the competence of management. Large TBTF banks will be more willing to negotiate than small community banks & credit unions in my experience.