Banks want short sales so badly they are paying for them.
Short sales, when a home is sold for less than it's worth and banks forgive the leftover debt, isn't ideal for a bank, but it's better than the costs of a foreclosure.
JP Morgan Chase offered $20,000 to Linda Paul of DeForest, Wis., if she agreed to a short sale, according to the Wisconsin State Journal.
Her real estate agent didn’t believe her.
“I told her they were already looking at hundreds of thousands in losses on the forgiven deficit,” Greg Hull, Paul’s real estate agent, told the State Journal. “Why would they give you $20,000 on top of it?”
Sure enough, Paul received $20,000 and was able to walk away from the deficit. The home sold to an investor for $116,000, which is well below the $334,000 Paul paid for the home in November 2006.
Other major banks are also offering these incentives.
Bank of America has been trying out incentives ranging from $5,000 to $25,000 in Florida since last fall, according to USA Today. The company is testing to see if it will work beyond the Sunshine State.
Wells Fargo is also offering checks from $3,000 to $20,000 to incent short sales.
"It's a lot cheaper to shell out $10,000 or $20,000 to someone than it is to go through a long foreclosure," Jim Gillespie, chief executive of Coldwell Banker, told USA Today.
It isn’t just the deficit that banks lose out on in a foreclosure.
In a foreclosure scenario, homeowners often quit paying personal property taxes and performing routine maintenance on the home, according to CNN Money. As the home deteriorates, so does the property value, which banks lose out on by tens of thousands.
"I've seen a lot of foreclosures for sale where it would cost a lot more than $20,000 to get them into condition to sell again," John Hayton, a short sale specialist in Orlando, Fla, told CNN Money.
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