After the temporary suspension on foreclosure sales in several U.S. states have been lifted, housing market observers expected banks to be more amenable to mortgage modification and short sales. However, the issue seemed to have scared majority of banks off short sales that some analysts have reported that finding Sheriff auctions has become more common than finding short sale transactions.
A big number of owners of Phoenix foreclosed homes, AZ had wondered about banks' preference for foreclosures over short sales despite the fact that they lose more on foreclosures than in short sale transactions. They added that banks were eager to resume foreclosing on properties right after the moratorium.
For owners of foreclosed homes in Arizona who attempted to initiate short sales, they quickly found out that most banks have put in place daunting procedures for short sales, with lenders setting up complicated application systems and bulky requirements.
Housing industry experts have stated that right now, finding Sheriff auctions will probably be easier than applying for a short sale. They speculated that part of the reason behind lenders' fear of short sales is the potential for fraudulent activities. According to them, there are some homeowners who pretend that they are in financial trouble to avoid significant property losses.
In some cases, analysts report that troubled homeowners who do not want to give their properties to people who buy foreclosure homes for sale will attempt to initiate a short sale to relatives who will then sell the home back to them; a procedure deemed illegal in the U.S. Industry experts have added that banks have reasons to fear since an estimated 2% of short sale transactions in the country involve fraud and banks lose around $300 million every year in these fraudulent transactions.
Furthermore, shorts sales often stutter when borrowers fail to submit the proper documents or still have tax liens. Difficulty in finding a buyer also hinders the process. Because of these problems, most banks instruct homeowners to first seek a modification although it is obvious that their applications will not be accepted.
With all these concerns associated with short sales, analysts report that more homeowners end up in foreclosure. They added that in places like Arizona, finding Sheriff auctions is somewhat easier to home buyers than for homeowners to initiate short sales.
John Cutts has been educated in the finer points of the foreclosure market over 5 years.
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