The advantage to a short sale strategy is that it limits the lender’s losses. The borrower doesn’t trash the house out of vindictiveness, the house doesn’t sit vacant for several months and the listing agent doesn’t call label the property “bank-owned foreclosure”, thereby automatically encouraging the uber-lowball offers. The problem with a short sale strategy for a lender is that they’re still under a tremendous amount of pressure to clear that loan and they can’t wait for a borrower who’s anything less than committed to getting out.

I could see a lender entering into an approval for short sale process in lieu of foreclosure, but only if they can exercise some control over the marketing of the property. For instance, if they could designate or approve of the listing agent, the list price, arbitrary price reductions at specified intervals, availability of access, etc.. The same controls they’d have if they had foreclosed and had become the sellers themselves. A lender couldn’t allow a borrower enough freedom to stay indefinitely or otherwise obstruct the marketing or conveyance of the property.