Now that Bank of America has joined Chase and GMAC in suspending foreclosures in 23 states (BoA is actually suspending them in all 50), including New York, the entire industry is abuzz with questions as to what the consequences are for the market, a recovery, and most of all, distressed homeowners. Now known as the robo-signing scandal, the issue is calling into question the legitimacy of thousands of foreclosures.
What’s more, with foreclosures halted, what will banks do to dispense with default properties and non-performing loans? The answer to my mind is clear: start paving the way for more short sales. Title is passed from one owner to the next with no interruptions or questions, the process saves the banks both time and money, and more borrowers can move on with their lives with dignity which is all to often a missing element of the current system.
The advantages are enormous:
- In a short sale, the bank doesn’t have to take 1-2 years to repossess the home. They get their money faster.
- In a short sale, there are no legal fees associated with a foreclosure.
- In a short sale, the bank does not have to manage the property, put the utilities in their name, or winterize the property except in rare cases.
- Short sales are seldom boarded up, vandalized, or vacant. They therefore net the lender more money.
This has always been the case, and made me wonder why banks are so difficult, but with foreclosures off the table short sales now appear to be their only option. With New York among the states that more lenders are suspending foreclosures, this gives distressed sellers breathing room, and, more importantly to my thinking, dignity.
