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Big Banks Now Proactive About Short Sales, Even Approaching Homeowners With Cash Incentives

- Friday, July 08, 2011

My, how things have changed in a year or two!

It was not so long ago that struggling homeowners had to beg lenders to approve them for a short sale. But now, some of the major lenders are making the first move - contacting the sellers themselves to propose a short sale, and even offering cash incentives to homeowners!

These short sale incentive programs are not widely publicized, and they are considered to be “by invitation.” As banks realize that they may recover more of their losses by allowing a short sale than by pushing to foreclosure, they are targeting homeowners who are at risk of defaulting - often, before they are even in mortgage trouble.

The lenders proactively contact these homeowners, suggesting that they undertake a short sale, and often offering a hefty cash payment to the homeowner upon completion of the short sale. These cash payments are reported to range from a few thousand dollars to up to $35,000.

Some of the lenders implementing these incentive programs, and the reported incentives, are:

Bank of America Cooperative Sale Program - upon completion of the short sale, the homeowner receives a $2,500 to $3,000 relocation payment, and the real estate agents receives a 6% commission.

Citi Proactive Short Sale Program - according to the HousingWire, the average cash payment to sellers this year was $12,000

Chase - offers cash payments up to $30-$35,000 to sellers

GMAC - there are reports of cash incentive payments to sellers of up to $1,600

Litton - reportedly offers cash incentives to sellers of $3,000 to $5,000

Wachovia/Wells Fargo
- offers cash payments of 1% of the sales price (minimum $2,500) for sellers.

Although these programs are considered “invitation only” - meaning that the lenders contact the homeowners, rather than homeowners applying for them - there are some reports of short sales negotiators successfully requesting that the homeowners they represent be considered for incentive programs.

But the big take-away from this story is that lenders no longer merely consider short sale requests - but that they are now proactively initiating short sales. This means that they are far more likely to consider and approve any short sale offer put to them than they were a year or two ago.

As Citi’s senior vice president of loss mitigation told the HousingWire, "We're not going to turn anybody away if the short sale meets the net requirement we're looking for." This means that the lenders are no longer looking for stories of exceptional hardship in order to approve a short sale. As long as the short sale represents the best way for the lender to maximize their recovery on a distressed asset, they will approve it.

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