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Posted by: Peter Coy on February 25, 2008
Frank Borges LLosa (pictured) has a great blog item on why banks drag their heels on approving short sales—that is, sales for less than the mortgage(s) on the property.
Two big reasons:
1. If the bank is collecting monthly payments from you while you try to find a buyer, it will get more money by delaying approval.
2. If the bank is protected by mortgage insurance, it can actually make out better by letting a foreclosure occur (and collecting insurance) than by accepting a short sale (and not collecting insurance).
Frank says that in Arlington, Va., where he sells houses, only three short sales have closed out of 65 listings—a rate of about 5%. The success rate is so low that he calls short sales “fake listings,” a source of frustration to all concerned.
If you are trying to get a bank to OK a short sale offer and for some mysterious reason no one is getting back to you despite numerous phone calls … now you know why.
For more information on short sales, check out the long string of excellent comments on Hot Property’s own thread on the topic, here.
BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.