Despite their “win-win” advantages, “short sales” are hard to get through lenders.

A “short sale” occurs when a homeowner whose mortgage exceeds the current value of their house sells the house for its current value, and the lender agrees to accept the price in full payment of the mortgage, forgiving the amount of the mortgage that exceeds the value of the house. This is done to avoid the problems associated with foreclosure.

The Wall Street Journal reports that the typical result of a short sale results in an average loss of only 19% of the loan amount for the lender, while the average loss on a foreclosure is 40%. This seems like a win-win situation benefiting both the borrower and the lender.

So why doesn’t it happen more often? Only 18% of house sales are short sales it is estimated. The most common problem appears to be that the lenders are not geared up to evaluate and process short sales, so it takes a long time before they respond to the request for approval from the seller. During that time, the buyer often gets impatient and moves on.

Other problems include unwillingness of the lender to accept the amount offered (they think the house is worth more than the amount being offered), and difficulty in getting both lender and servicer to agree. Only about 20% of short sales go from offer to close, while about 85% of regular sales make it to close.

This is unfortunate. Anything that reduces foreclosures and avoids having empty houses that are vulnerable to trashing and animal intrusions is good for the neighborhood, as well as the lender. If you are thinking about a short sale, it might be wise to try to get your lender to agree on doing a short sale and a minimum they will accept in advance.

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