Short Sales - Lenders can lose a little, or Lenders can lose a lot

We just had a sale fall out of escrow because the lender(s) wouldn't approve a short sale on an all cash offer that was approximately 83% of the outstanding balance of the combined 1^st and 2^nd mortgage. This amounted to a lender's loss of a little more than $26,000.

Without going into to all of the details of the transaction the buyers had an offer that was accepted by the Seller's attorney. They wire transferred all the funds necessary to close escrow and all contingencies were either satisfied and removed or waived and removed including the fact that the potable water well had a history of running out of water in the late summer months and the well water tested positive for ecoli and coliform. All we needed was the lender(s) approval for the short sale. The 1^st and 2^nd mortgages were issued by the same lender.

 So the decision the lender(s) had to make was should we accept this offer and lose a little or should we foreclose on the property, sell it at an auction on the steps of the county courthouse and take the risk of losing a lot.

 The fact is that the economy is our area was built on the Timber and Fishing industries. Both industries have been in a serious decline for a long time, there are no jobs and the local economy is depressed. The real estate market in our area has only produced 15 residential sales in the last 12 months. At the current rate of residential sales there is nearly a 4 year inventory in our market.

 Given the problems with the well water, the local economy, the declining real estate values in our area, the scant few sales, the large inventory in our market, and the costs of the foreclosure; the lenders decided that they would not approve the short sale. They are proceeding with the foreclosure and an auction of the steps of the county courthouse.

The lender(s) decision will have a negative impact on everyone involved - the Sellers, the Buyers, the other property owners in the subdivision, the lenders, and the real estate brokers for the Sellers and the Buyers.

 With poor decisions like this one by the lender(s) we are obviously a long way from the market bottom and a long time away from the recovery