The Short Sale Payout Lottery

Banks are giving away money!

The buzz started in the mortgage and real estate industries, now it’s reached the general public: Big mortgage servicers are paying big bucks to homeowners who will agree to short sales. $20,000 to $30,000 in some cases. The catch: These cash bonanzas aren’t available for everyone, and you can’t just request them. You have to wait for your lender to “tap you on the shoulder” as one observer put it.

That creates an air of mystery and excitement, which can only help the servicers’ efforts. It’s the same psychological tactic behind lottery promotions: Who will be the lucky winner? It could be you! The odds are against it, but who knows?

So, what could be motivating the mortgage servicers to reward delinquent borrowers with such outsized gifts?

Relocation My Eye

These incentives are often referred to as “relocation assistance”, but it would take a pretty large estate to incur $30,0000 in moving costs. More likely these payments are bribes to induce borrowers to eschew strategic default. Banking institutions act reliably in their own interests, so it’s a fair guess that they’ve calculated the relative costs of foreclosure and decided the short sale incentives are a better bet.

According to an anonymous bank source mentioned in this Bloomberg article, the payout programs target specifically loans that would be hard to foreclose on—especially those with chain-of-title issues. In other words, the servicers are hoping to ease borrowers out of their homes before they discover that their lenders have no legal standing to foreclose.

The plot thickens.

Stirring Up Interest

Another theory is that the servicers are rolling out these incentives on a small but widely-dispersed basis precisely to gin up the public’s interest in short sales. Then, when a distressed borrower calls to inquire, they can offer other short sale programs. At least they have an engaged homeowner, which is hard to come by nowadays.

Perhaps both motivations are in play. What is indisputable is that short sales are the best remedy for homeowners and investors alike when payments become unsustainable. Tom Kelly, spokesman for JPMorgan, was mum on the subject of homeowner incentives for the Bloomberg article, but he gave this unambiguous endorsement of short sales in general:

When a modification is not possible, a short sale produces a better and faster result for the homeowner, the investor and the community than a foreclosure.

To which we can only say amen.

Rob Alley, Realtor/Owner of Virginia Real Estate Solutions at RE/MAX Assured Properties
434-220-7133
roballeyrealtor@gmail.com
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