Bank Short Sale

A bank short sale is the same as a mortgage short sale, a real estate short sale or just a short sale. Technically, a bank short sale is a short sale done on a bank mortgage loan, instead of other real estate short sales that could be done one other financial institutions' loans or private loans. Since banks do the most mortgage lending, a bank short sale is the most common form of short sales.

Why banks do short sale?

Many people ask 'why would banks do short sale?' The reason why banks do short sale is simple, banks don't want to lose more money than they have to. When a homeowner is in default and he or she owes more than the house is worth, what choices do banks have?

A. The bank can foreclose on the homeowner and take the property. But the home is worth less than the money owed so the bank will be taking a loss. Plus, the bank will have to spend time and money foreclosing on the homeowner. The process is time consuming and it ties up the bank's reserves for a long time, during which time the bank cannot loan out that money.

B. The bank can sue the homeowner for the amount owed. However, is that really the best thing for the bank? First of all, the bank will be spending more money and reserves going after the homeowner. What if the homeowner files bankruptcy. Than the bank will not be able to do anything with the house or their reserves for a couple of years. That is certainly not good for the bank.

C. The bank can accept a bank short sale, take some losses upfront and accept what they can live with. This often saves the bank in the long run. The bank will not have to pay for the foreclosure process, tie up its reserves, and have a bad debt collection in their books. This looks much better for the bank from its shareholders' eyes.

Do I have to be in foreclosure for banks to do a short sale on my mortgage?

No. Homeowners are often confused as to when banks will do a short sale. Some people believe that banks only accept a short sale when the homes are in foreclosure. This is not the case. Although different banks have different policies on how they accept a short sale, most banks will accept a bank short sale when just a few payments are late. Others may want the notices of default to be sent before they consider doing a short sale.