Short Sales Being Resisted As Lenders Revive Foreclosures

During the last week of October, GMAC and bank of America decided to resume foreclosure filings after stopping due to allegations there are legal problems surrounding the foreclosure documents being signed and processed by so called robo-signers.

A lot of homeowners who were hoping to avoid foreclosure via short sale were disappointed and are actually wondering why their lenders are balking at the foreclosure alternative. Short sale transactions involve selling the distressed property at an amount less than what the owners owes the lender. The lender will receive the proceeds of the sale and consider the mortgage paid. In many cases, the lender forgives the difference especially if it is clear the owner cannot afford to pay the balance.

During the foreclosure moratorium, a lot of experts thought the lenders would be pressured to accept short sale proposals and mortgage modification in order to recover some of their loss, but instead of thoroughly reviewing their foreclosure process and checking if there are legal issues, most lenders just did a quick check and resumed with their foreclosure cases.

In other states, although most of the underwater homeowners have decided a short sale is the best option to stop foreclosure, they realized it would not be possible considering the complicated and lengthy short sale process which lenders have set up.

If you ask lenders, they will tell you their main concern about short sale transactions is fraud. There are many well-to-do homeowners who make it seem like they were having financial problems and try to cut loss on their property, whose values have declined. There are also cases wherein the owner would simply sell their home to another family member via a short sale and then buy it back. Based on a study, banks lose an average of $300 million every year due to fraudulent short sales. Approximately 2 percent of the total short sale proposals or applications are fraudulent.

On the other hand, many owners fail to get approval on their short sale proposal due to their failure to forward the correct documents or were not able to find a suitable buyer whose offer will satisfy the lender. In such cases, having a short sale Realtor would have made a huge difference.

http://www.nytimes.com/2010/10/25/business/25short.html?_r=1&scp=5&sq=foreclosures&st=cse