The U.S. Treasury is set to announce a plan to expand mortgage relief efforts to include short sales by providing a closing cost incentive to homeowners and lenders, the Realty Times reported October 22, 2009.

Now that sounds like a complete waste of taxpayer money.

A short sale occurs when the bank allows the sale of a home for less than the existing mortgage balance.

It's a strategy to avoid foreclosure, but banks have been more likely to let a home go into foreclosure, rather than short sell it, even if it means holding the property during moratoriums set by some jurisdictions, such as Massachusetts.

Why you ask? It's because short sale offers often come in well below the last appraisal or any reasonable amount, real estate agents don't want the extra work and time involved and buyers fear a four-to-five month transaction period that could end in the bank refusing to accept the short sale.

My office has had some success closing short sales, but deals that fall apart usually end with unhappy clients, and the result simply isn't our fault. Sometimes it is easier to just avoid the problem altogether.

To help move more distressed properties through to closing, the Treasury, under the Making Home Affordable's Home Affordable Modification Program, is expected to announce a $1,500 closing cost incentive for those who agree to short sales or deed-in-lieu deals, which is when the deed is transferred to the lender, avoiding the more costly foreclosure proceeding.

The U.S. Treasury will also pay the lender $1,000 for accepting a short sale or deed-in-lieu deal. Haven't the taxpayers done enough for banks?

A better approach would be a law that requires lenders to accept or reject all short sale offers within 30 days. In addition, if the property sells after foreclosure for less than any rejected short sale offer, a lender should be barred from pursuing the borrower for any short fall between the sale price and the balance of the mortgage.

Earlier this year when the plan was first considered, there was also a provision to pay second lien holders up to $1,000 to waive their claim in such transactions.