Why are some banks foreclosing when they have the opprotunity to short sale at a sensible price?

If the bank forecloses, the unit will never sell for what this buyer is offering..  Any comments?   
  • October 31 2010 - Mission
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Answers (9)

Profile picture for MoniqueU
South Padre is such a fun place. why would a bank take less?
  • November 02 2010
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Due to the "shared loss" agreement between the government and banks, it often makes more sense for the bank to take back the property and get reimbursed by our tax dollars for the difference between loan balance(s) and final sales price as an REO than it does to do the short sale.  Up to eighty cents on the dollar.  You do the math and suddenly it all makes sense.
  • November 02 2010
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Profile picture for dstead
The banks are so buried with short sale requests that they just can't handle all of them.

I believe that they are now realizing that it's a better way to go, and they'll save money in the long run.  Keep trying!
  • November 02 2010
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Profile picture for the_country_hick
Short sales cost to much money. With PMI, government bailouts that sold bad loans with guarantees to those who took them over short sales lose more money and foreclosures generate profits. Enough said.
  • November 02 2010
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I prefer the old adage
"Never attribute to malice
 that which can be adequately explained by
  Stupidity"
  • November 02 2010
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Profile picture for blue screen exile
All these so called "experts" don't know the obvious answer provided by the lenders and the government????

Many underwater borrowers were required to get "mortgage insurance"...  the lender doesn't collect on the mortgage insurance when they do a short sale, they collect on it when the loan is in default and they have to liquidate the asset to get some of their "investment"... the rest comes from the mortgage insurance.

And the other major issue is the PIPP enacted by Congress in April 2009.  This essentially guarantees several mega-corporation lenders that the government will cover up to 95% of the value on "initial investment", which can mean that the lender can receive over 150% of their direct costs if they simply allow the borrower to fail to make payments instead of bailing the borrower out with a short sale.

Besides, every month that a short sale doesn't go through is another month of interest payments the lender collects at inflated housing values.

And don't forget, the bank keeps the original "value" on the books until the short-sale or foreclosure goes through.  The banks don't like showing a loss on their books as it requires them to have more "reserves", so they will do what they can to postpone recording the loss.

Actually, with all these things working against a "short sale", it is surprising that any short sales occur at all.
  • November 01 2010
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I am not sure I can make sense of the decisions the banks make, but I think one of the reasons is that a accepting a short sale is accepting a loss on a property you do not yet own.  I think the banks feel that something can change which will prevent them from taking a property back. 

I also believe that many banks think many owners are not doing as bad financially thay they really cannot afford a home, but would like to get out of a property that is worth less than they owe. 

I have had several short sales not get approval from the banks before the sheriff sale only to have them come back on the market as an REO listed ar far less than several cash offers I had presented to them during the short sale, sometimes at half the price.
  • October 31 2010
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Per a short sale classs taught by someone who works for NAR here is an insiders simple answer:

"Many of the loan servicers get paid to do a foreclosure but do not get paid to do a short sale."

Erika in Orlando

  • October 31 2010
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Profile picture for SoCal Engr
Not sure, it's simple enough to Google and get any number of reasons.

But, embedding your phone number in your screen name is self-promotional and not allowed on Zillow's forums...and you're not the first to come up with the bright idea.
  • October 31 2010
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