Why home owners still let their homes foreclose?

Most homeowners who have their home foreclosed on do not qualify for a short sale. Contrary to what some believe, most banks will not approve a short sale without hardship. That means as long as the owner can still pay and is not in default, the bank will not grant a short sale. So it's keep paying or let the bank come get it.

Owners interested in seeing if they might qualify for a short sale can get more information here. Short sale still has a significant negative effect on credit, but it is generally less and shorter than a foreclosure would be. 

Many home owners who are behind make a concerted effort to work with the bank.  They simply give up - exasperated by the process.

First of all, in many cases - if not most these days, they are not actually talking to the bank, but rather to a servicing company the bank has contracted with.  These entities typically have no authority - it is no man's land for virtually all who enter.

If you manage to talk to someone reasonable, acquire the appropriate forms, provide the additional information required that they failed to ask for up front, and magically have the servicing company check all of the items off, your information gets sent to the bank.  Now you've just made it to step one, and it could have taken you 6 weeks to get there. Through the entire period, the servicing company keeps calling the home owner saying they want to help.  REALLY??

It is an exhausting process.  It requires great attention to detail, persistence, and some knowledge that this process is as screwed up as you think it is to get through it.

I have worked through this process with home owners, and I can't imagine anyone without experience actually making it to the finish line alone.

I agree that short sales make sense for a lot of people. If you want to make the play, find an agent who is detail oriented and tenacious, and get them on your team.

Although foreclose might be better in some unique circumstances (i.e. - non-recourse loans, no plans of building credit, bank won't waive right to deficiency, etc), this is hardly the reason homeowners "choose" foreclosure.

I'm seeing more homeowners being put to sleep because of the long delays in applying for a modification. After being adjusted to no mortgage payment and waiting, the denial letter is sent, the trustee sale is filed and the homeowner doesn't take action quick enough.