Why Banks Don’t Like Short Sales

The front page of the Huffington Post had an interesting article regarding Short Sales and why banks do not like them. The focus of the article was that if the bank sells Short they have to write off the short portion of the loan. If they prevent or ignore a Short Sale they can keep the full value of the loan on the books. I am not sure this is true if the owner is behind in their payment which most Short Sale owners are. Here is the link to the Huffington Post article http://www.huffingtonpost.com/2009/05/08/short-sales-banks-blockin_n_199099.html

Paul Hickman of Stewart Title feels banks don’t like Short Sales because they fear getting scammed by the home owner. An example of this is the owner sells to a friend or family member as a Short Sale and then in a year or two buys the house back (pre-arranged) from the “friend”. The result is the original owner gets the house at a much reduced price and the bank has lost a lot of money. All the Short Sales I have been involved with have a form required by the Short bank saying there are no secret deals. Usually they require that the new owner can’t have any pre-arrangement to rent back to the sellers.

Either way, the article is correct, banks can and often do take months to respond to an offer and by the time they do the buyers’ have given up and found another house.

Warren Carreiro, Broker

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