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Financial Companies Choosing Foreclosures over Short Sales

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By : John Cutts    99 or more times read
Financial companies are choosing foreclosures over short sales because of the difficulty and time in working out complex transactions in short sales, according to realtors and homebuyers.

In addition, some banks estimate that they are able to cut their losses in foreclosure as opposed to short sales, particularly in mortgages guaranteed by government agencies like Fannie Mae, Freddie Mac or the Federal Housing Administration.

In Florida, real estate professional Peter Murphy said that despite much higher price offers from buyers interested in short sales, lenders still foreclose on the desired properties, even if the foreclosure prices are much lower than the short sale offers.

Murphy added that last year, properties sold in short sales were priced at $68 per square foot while real estate owned properties were priced at a much lower price of $55 per square foot.

He also added that in order for home prices to stabilize, banks must approve more short sales to preserve prices. He explained that while bank owned homes are being sold at around 54 percent of conventional sale prices, short sales can be closed at about 80 percent of conventional sale price levels.

However, despite the record number of distressed homeowners asking permission for short sales from financial companies, these requests are not being addressed. Typically, banks take an average of 298 days to complete a short sale, but when they foreclose, they complete the process quickly, just slowing the process a little to comply with foreclosure laws, according to realtors in Florida.

The case of Texas homeowner Chandra Persaud is illustrative of the attitude of banks toward distressed sales. At the time Persaud was in default on her loan, she still owned $295,000 on the $350,000 she borrowed in 2005.

She negotiated a short sale offer of $240,000 in cash with her lender Bank of America, but to her frustration, the bank still pursued foreclosure action on the property and sold it later for only $205,000, an amount $35,000 lower than her cash short sale offer.

According to Bank of America spokesperson Rick Simon, short sales require complex transactions and take a long time to carry out. They also involve several parties, such as agents, sellers, buyers, servicers, investors, insurers and subordinate lien owners.

Financial companies recognize short sales as a tool to prevent foreclosure, according to Simon, but short sales consume a lot of time and effort particularly in an environment of high volumes of distressed properties.
John Cutts has been educated in the finer points of the foreclosure market over 5 years.

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