Lenders are not in the business of owning property. They would rather loan, not own. If they own too many foreclosed properties it affects their lending capacity and could ultimately put them in trouble with the government regulators that oversee the banking industry. Recent events with IndyMac Bank and Washington Mutual Bank are a prime examples of what could happen to a bank if they do not take steps to efficiently deal with existing or potential defaults in their loan portfolio.
When a borrower misses a loan payment, that loan becomes a "non-performing asset". Although by name it is an asset, in actuality it becomes a liability to the bank. Not only does the bank not earn interest income on the loan, it may be required to substantially increase its loan loss cash reserves. This further harms the banks ability to make interest income and the net effect, if not addressed, could be a downward spiraling effect to the bank.
A study by the Federal National Mortgage Association ("FannieMae") estimates that the entire costs of an average foreclosure to the lender can be almost $60,000. This figure includes legal fees, eviction costs, property taxes, insurance, maintenance, vandalism, utilities, HOA dues and selling expenses. In addition, the same study estimated the average time frame of a foreclosure to be up to 18 months, being from initial default on the payment to ultimate resale of the foreclosed property.
Given the above, you can see it is in bank's best interest to consider a short sale. In fact, they welcome an efficient short sale and have departments that specialize in achieving such.
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