What is going on with the banks?  I have recently seen this scenario play out twice in the last month.  We have a contract, present it to the bank for short sale approval.  Bank orders a BPO(Brokers Price Opinion) and cancells the short sale because of "Insufficient offer".  Bank forecloses and relists the house as an REO(foreclosure) for 25% less than what our buyer could have closed on it for 3months ago.  Huh?  Just so you can see it in real numbers.  I will give you an actual scenario.

Seller had a contract with a cash buyer for 1million dollars.  In this case the bank would have sustained a minimal loss in the short sale, about 75k.  The day of closing the Bank decides the cash buyer for 1million is not enough and refuses to release the lien unless the buyer pays more for the house.  Buyer walked from the closing and the bank foreclosed on the property.  The house is now listed as an REO foreclosure for $750,000 and have no offers on the property. 

This did 2 things to create further loss to the bank, first is obvious.  The bank gave away $250,000(maybe more, the house has not sold yet) and 2nd Reset the market for the neighborhood thus affecting the value of the current homes in the area. 

Can anyone tell me how this makes sense?