Short Sales are Taking Forever!

By now, everyone knows that a "short sale" occurs when real estate is sold for less money than is due on its mortgage. A short sale serves as an alternative to foreclosure, where the borrower cannot afford his mortgage payments and the lender determines that it is better to sell the property at a moderate loss than to press the debtor to pay the whole balance. By following through with a short sale, the lender avoids the hefty fees of foreclosure and the debtor avoids the resultant plunge in his credit score.

Because both parties (lender and debtor) must consent to a short sale, it is becoming increasingly difficult to effect – not because it is somehow less favored than foreclosure in our current economy, but because lenders are taking forever to grant their approval. Many of my clients have voiced concerns in this regard, and I thus consulted some realtors to better understand the situation. I found that like other businesses, banks too laid off employees to survive the recession, and so they just don't have the manpower to sift through the vast quantities of short sale applications they receive in a timely fashion. Some of the real estate transactions that I have been involved have taken up to 6 months to close. It's crazy.

What's happening now is that homeowners are increasingly engaging in "strategic defaults" or voluntary foreclosures, whereby they simply walk away from their mortgages; they just stop paying, let the bank take their home and move into a rented apartment for half their monthly mortgage payment. Everyone loses when this occurs. Banks lose money and are burdened with so much more work, and homeowners face a deficiency judgment and suffer a 100 point decrease in their credit score, making them ineligible for a new mortgage for seven years and less likely to be approved for credit in any other capacity. What I don't understand is why these over-stretched banks don't take their federal bailout money and hire (or restore) more employees. This would not only solve the short sale situation, but also help boost our economy!