I wish it was as easy as everyone would like it to be but it is far more complex. As someone who has listed close to 100 short sales I can tell you there are many moving parts. From what I see outright fraud is nowhere near as prevelant as you beleive. What is prevelant is acting in a manner that is in the sellers best interest which may not fall in line with a more perfect system. Here is a hypothetical example illustrating one major problem with the system with a responsible seller trying to do the right thing and not milk the system.
As a seller my best interest is to get the property sold, to get a good clean release and to get it closed asap minimizing the late payments hitting my credit report. That means accepting an offer that will close escrow from a buyer with the wherewithal and willingness to contribute to a second if necessary.
Lets say a seller owes $500K on a house that is now worth $375K. He has a $400K 1st and $100K 2nd that was refinanced. Two offers come in. One from a buyer who is putting 20% down, has plenty more, is renting month to month in the neighborhood and has kids in the local elementary school. They offer $375K which is what the comps say its worth. Buyer two comes along and is a young first time buyer couple with no kids and they are putting 20% down but only have that to put down and they offer $400K.
If the seller submits the $400K they are facing an appraisal issue and they dont have a buyer who can contribute something to help them settle the 2nd. They have two bigger issues though. They have a buyer with no ties to the neighborhood who is far more likely to keep shopping for a better deal which makes them more likely to walk instead of waiting it out. They are paying a higher price which makes it more likely they will find a better deal. If they find a better deal, I need to find a new buyer and it will take longer because we will need to get that buyer’s offer approved which means more missed payments on my credit report and hence more credit damage. After sitting on the market for a few months during the approval process the urgency is gone for new buyers and where the hell am I going to find another buyer close to $400K which the lender now expects because they saw it already. What happens if the market has fallen more making the $400K even harder to get or justify? Is the lender better off because the seller went for $400K buyer who didnt wait around instead of taking the $375K offer from a buyer who would and now it will sit empty another 3 to 6 months on their books with the value falling another $25K? There are so many moving parts and judgement calls I make with my clients on these things and we do so with the best of intentions while trying to protect the sellers interests.
I’m not saying any of this is right or wrong it is just a very real peak inside how things go down and how sellers need to make decisions to come out with the optimal outcome for themselves.
