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Short Sales vs REO's

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Real Estate Agent with Domain Realty.com, LLC

I have a question that I am hoping someone might be able to answer regarding the banks, short sales and REO"s.  I am a Realtor  in Southwest Florida, an area, as much of you already know hard hit by foreclosures and short sales.  With regard to the short sales, on the average it takes at least 6 months for banks to approve them, and then more often than not the buyer walks.  Shouldn't short sale approval take about the same amount of time as a mortgage loan would in underwriting?  These short sales and REO's are devaluing properties in the area, bringing down the comps and creating an abundance of inventory.

My question is are the banks being given incentives to hold up the process?  Fro example, I had a mortgage broker who purchased a condo for approximately 650,000 in 2004.  He put down 20% and did an income verified mortgage.  When the bottom feel out, he tried to negotiate a short sale.  He then became ill and as a result of not putting pressure on the bank every day, the bank foreclosed on his condo.  His short sale offer was 470,000.  The bank sold it as a REO for 300,000 and now are suing him for the deficiency.  I am having trouble wrapping my brain around this!  First and foremost when he did speak with the short sale negotiator about the long process and the threat that his buyer may walk, their response was basically "tough".  So when they foreclosed the bank put it on the market for 170,000 less than the short sale offer, thus bringing down the values of other like properties. 

What motives do the banks have for doing this?  I cannot figure this out!  I keep thinking that if the banks would re-negotiate people's mortgages at current market values (and write off the loss as they are doing with short sales and REO's), do an income verified mortgage renegotiation and keep the people in their homes, that it would surely stabilize the housing market by keeping the values up and lessening the inventory.  Am I missing something?

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Sandy Wagner
RE/MAX Professionals 253.225.8322 - Gig Harbor, WA
Short Sale Specialist Tacoma, WA, and Gig Harbor,

I would like to know the answer to this question as well. Not all banks are doing it, but it seems some are.

Feb 21, 2010 10:28 AM
Drick Ward Property Management / Broker Assoc
NEPTUNE REALTY - Virginia Beach, VA
"RealtorDrick" - Experienced Representation

Appraisers are supposed to exclude any distressed sales (short sales, foreclosures, etc.) when pulling comps, so the impact on area values SHOULD be limited.  Banks seem to prefer foreclosure to short sales due to CONTROL.  With a short sale, the bank has no control and is at the mercy of the agents, closers, and buyer/seller - they are just hoping to get some of their money when it's all done.  With a foreclosure, the bank may net less, but they regain control over the sale and from what we've seen in my area, they have become much more strategic about putting their houses out on the market more slowly to limit the damage their inventory does to neighborhood prices.

Two people were faced with the same housing choice a few years ago.  One purchased well and may have selected a smaller house, the other overpaid and may have over-purchased.  Why should the second person be given a free pass to stay and the bank take the loss?  There are consequences for actions - both good and bad.  If the market hadn't tanked and prices had doubled again, there wouldn't be an outcry for those who risked less to be given the same rewards as those who risked more--it's the chance each took.

Feb 21, 2010 10:57 AM