Although selling a home at a short sale to avoid foreclosure can be a mutually beneficial solution for both homeowners and banks, many lenders are quite reluctant to allow this method. More common than simply turning down an offer is when a bank delays the process for so long that the original sales contract expires and the buyers and sellers decide to give up on the process.
One reason for this may be that lenders believe there are better alternatives to foreclosure that would allow them to keep more of the balance they are owed on the mortgage. While some homeowners are unsure of which options they may qualify for, it should be the responsibility of the bank to propose other solutions if they believe the owners to be rushing into a short sale without all the facts. Simply delaying the process, giving no answers and no advice, is extremely unproductive and will only further damage the owners’ financial position as they accumulate more missed payments.
Another problem, of course, is the large number of homeowners facing foreclosure. Not only the subprime market, but also the prime mortgage market, are facing larger than expected foreclosure rates. The effects of the suprime market going bad have created a drag on housing prices, which are effecting even homeowners with good credit who run into a financial hardship and are unable to sell or refinance due to the high balance they owe own the mortgage compared to the shrinking value of the property.
With the proliferation of second mortgages and home equity lines of credit, negotiating a short sale can become quite complicated. These types of loans were pushed on nearly every homeowner as a way to tap into their increasing equity and treat their properties as if they were credit cards or ATMs. Now that access to these lines of credit are being restricted, homeowners who relied on them to finance large expenses or businesses have an even more difficult time working out solutions to foreclosure.
Unfortunately, it seems that there are far more problems in working out short sales now, despite the fact that they could benefit both buyers, sellers, and lenders. The reluctance by mortgage companies to consider these deals, though, means that no one wins in the end, if the home is taken all the way through foreclosure and sold at county auction. In these cases, it is not uncommon for banks to relist the properties for sale on the market for even less than the amount they were offered for the short sale.