I don't think that's the same thing. I mean, if they sell it for what they owe, they get out from under it but lose their equity. The bank gets their money. In a short sale, the bank determines the amount of loss they're willing to take.
If someone owes $78K on a house they could sell for $78K, they would still come up short due to the closing costs. Typical closing costs are about 8%. So, the net on a sale for $78K would only be about $72K. The seller would need to come up with $6K to close the deal.
So, even with these numbers, a short sale would be in order. If the seller can't come up with money and can't make the payments, the bank might accept $72K as the payoff.
The owner has no equity to lose. Realistically, unless you owe less than 92% of what you could sell a house for you have no equity.
I don't think you should worry about what the bank with take other than as a factor in whether or not you can close the deal. Figure out what the house is worth to you. Offer that to the bank. If they won't take it -- next!
I guess I don't see why the bank would be flexible on getting shorted 6k. That's not *that* bad compared to some of the ugly stuff that's going on, so why wouldn't they expect to get the full amount back, even if it means having to pay up after the house is gone and sold?
Because the bank can't get the money back. The owner cant pay the mortgage, the house wont sell for the amount owed plus closing costs, and foreclosure is very expensive for the bank. A lot of times the bank would rather just sell short because their loss is actually mimized this way.
Minna,
Saw your post last night, but had trouble getting in the forum to post for some reason. I can help you with this. I will add you as a friend, so you can contact me off forum.
Kathleen
I've done short sales in the past and I don't bother with them anymore. In my experience I've found them to be more work then they are worth. You would think that if the bank stands to lose more via a full foreclosure than a short sale deal you are proposing they would jump at the opportunity, however, that isn't necessarily the case. Most banks get a number in their head and they don't budge, even if you show them piece after piece of evidence that their valuation isn't realistic. Then even if you can convince them to finally come to reality you still have to deal with short time frames, that they rarely will extend, in addition to other hassles. All in all it is way too much work, you can find better deals and save yourself the added effort and frustration. I'm not saying that you can't ever find short sale deals, but unless you've got experience, connections or are able to buy in bulk you are going to spend a lot of time chasing pennies.
If you are trying to buy a property for $72K when it is really worth $78K, I'm pretty confident you can do better anyway.
I have done dozens of short sales in the past and I would not do one now if someone put a gun to my head.
They are a waste of time for the serious investor who should not be sitting on the phone for hours trying to negotiate with the bank. I would stick with the deals that you know 99% are going to close and send your short sales to another investor and work out a deal between you and them.