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Why do banks take weeks/months to consider an offer on a short sale?

So, banks apparently take weeks or even months to get around to considering whether or not to accept an offer on a short sale.  I sure would like to know why!  Is it just huge backlogs and lack of personnel?  Or is there actually some incentive to dragging it out? 

My only theory is they're hoping that more DOM means more, better, higher backup offers.  Am I onto something?
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April 04 2011 - US
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Not only are they working with limited personnel and backlog but they have to get the paperwork from the seller and deal with the investor. Many situations are lack of required paperwork by the seller to complete the requirements to present to the investor or investor pool. Once this is completed and the appraisal has been completed and submitted, the bank then has to submit everything to the investor and wait for their response. Another issue is if there is a second mortgage involved, the lender may have to deal with not only more than one possible investor or investor pool, but also negotiating down the second and/or negotiating with the seller to assume responsibility for the second.

The larger the lender, the longer the wait. I've seen some smaller lenders complete a short sale in 30 days. Deal with the big banks and it can take months.
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April 05 2011
Profile picture for brad606
Thanks for the answers so far!  I hadn't considered all the "stakeholders" a bank must reach consensus with, particularly investors.

The only part I don't understand is "too few" or "uninterested" staff.  I know I'm full of naivete, but why are banks not hiring specialists for (or contracting out) this work?  Work that's an increasingly large part of their balance sheets?

It's either genuinely bad management on their parts, or somehow there is a incentive to procrastinating and kicking these assets down the road another quarter or two, even if it means they move to foreclosure. 

Having worked in a publicly traded company before, I know all too well the almost childish way companies obsess about meeting quarterly earnings, even if it just means more pain down the road later.

What really makes me groan is just knowing the seller's bank (which rhymes with "Whale's Cargo") will just hate my offer.  I think it holds up in light of a CMA, the state of this small-town (Flagstaff, AZ) market, and where I expect the market to be in 8 weeks. 

But I just know they won't see it that way.  I feel like, even if I'm as patient as can be (I'm a bachelor who can just keep renting month-to-month ad infinitum), I sadly give this an 80% chance of ultimately falling through.
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April 05 2011
Short sales have become the bugaboo of most agents' lives and everybody here is correct.  You may enjoy my short sale tales on my blog at http://sfvrealestate.blogspot.com.  I'm sure I'll be telling more tales in years to come!
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April 05 2011
Pure and simple:

Too many dots to connect (ie: lender, servicer, investor, MI etc)
Too few staff
Under trained staff
Under paid staff
Uninterested staff
Too many files
They lose everything and it all has to be submitted again
Too many departments
Inexperienced agents not knowing what a short sale packet is and how to submit it!!!!!! (which is my #! pet peave) Com'on... if you are going to take a fiduciary role, at least have a clue.
Unrealistic offers clogging the system
etc... etc.... etc...

IMO, I don't think it has anything to do with more DOM, therefore better offers.  In fact, the opposite is true.  More DOM results in fewer, lower offers.
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April 05 2011
There certainly is a method to the bank's madness, for all the reasons you suspect and that have been explained in previous answers.  But let's face it, the process is not that complicated and banks can close a short sale within a few weeks if they want to.  As Michelle points out, each short sale is a loss on their books.  Taking an operating loss and letting go of an asset - albeit an underperforming asset - is a double whammy to a banks financial statements.  There is a balance to found in taking the loss and reinvesting whatever cash the bank gets from the sale.
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April 05 2011
Yes, yes and yes. Banks don't make the best home owners. And unfortunately, many banks are over whelmed with the numbers of distressed homes. There is not a standardized process by which things flow. Right hand and left hand, not exactly working together.

Banks want to get their money.  So banks want to be thorough, to make certain that the sellers don't have assets that could be used to compensate for some of the shortfall. Which can take time.

And yes, during the process I am sure they are hoping to get multiple offers and get the highest dollar possible.

And of course, once the bank accepts the short sale, it becomes a loss on their books...hmmm. I think quite a few of these big banks are still showing some nice profits...(my opinion).
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April 05 2011
 
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