Analysis: Short Sales Resisted as Foreclosures Are Revived

As Bank of America and GMAC prepare to resume foreclosures again after a brief moratorium due to faulty paperwork, many hard-pressed homeowners are asking why lenders often balk at a less disruptive solution: short sales, the New York Times reported today. The halt in most foreclosures the last few weeks gave a hint of hope to homeowners, who found breathing room to pursue alternatives. Consumer advocates took the view that this might pressure banks to offer mortgage modifications on better terms and perhaps drive interest in short sales, which are rising sharply in many corners of the nation. However, some major lenders took a quick inventory of their foreclosure practices and insisted their processes were sound. Concerns about fraud are one of the reasons lenders are so careful about short sales. Sometimes well-off homeowners want to portray their finances as dire and cut their losses on a property. In other instances, distressed homeowners try to make a short sale to a relative, who would then sell it back to them (a practice that is illegal). A recent industry report estimates that short sale fraud occurs in at least 2 percent of sales and costs banks about $300 million annually.

http://www.nytimes.com/2010/10/25/business/25short.html?_r=1&ref=business