Short-sales continue to make up a larger percentage of distressed home listings. As banks continue to drag their feet on approval of short-sales, foreclosure sales are on the rise.
Why aren’t the banks trying to expedite and enhance the number of successful short-sale transactions instead of losing more than one-fifth the value of the property through a foreclosure sale?
One reason is that with a short sale there are often long delays at a bank or financial institution’s loss-mitigation department. Very often the transaction falls apart because of the extremely long period of time it takes to get any meaningful response from these institutions. Also, they often decide to change the agreed-upon terms at the last minute.
Additionally, buyers will see a short sale and mistakenly think that the bank will sell it far below list price because the bank doesn’t want to own the property, so they make an offer significantly under value. True, banks may not want to own the home, but are not going to sell far below what they have determined as the true market value.
A short sale will hurt the consumer’s credit, but not nearly as much as a foreclosure, which can reduce a credit rating by more than 250 points. Short sales appear on a credit report as "pre-foreclosure in redemption," not as "debt discharged due to foreclosure."
By approving more short sales, banks would help solve some of the problems associated with foreclosures such as deteriorating landscaping, declining property values and lost revenue for homeowners associations.