I think the lender is going to lose their ass on this one. If the property was exposed to the market by two agents and after reasonable exposure came up with an offer, what makes a lender think they’re going to do any better by:

– spending the money to foreclose

– spending the money to secure the house and maintain it

– spending the money on a new broker, only to have them slap a “FORECLOSURE SALE” tag on it in the MLS.

Time is not on their side, and meanshile they have an unperforming asset on their books.

There’s no way the lender’s going net more out of this deal by taking it back and they’re high if they think otherwise. They should have signed off and moved on. They might have had a chance collecting on the deficiency under a short sale; burying that borrower by another $100k merely guarantees they’ll never see a dime out of him.

Mistakes are almost a given – sellers ruled by emotion and quite apparently in turmoil (at least financially), loan servicers swamped by a rising tide of delinquencies (peppered with fraud), inadequately trained loss mitigators, out of area servicers (some of which almost seem to thrive on non-performing loans) – all of which is against a backdrop of people looking backward (at values and data) versus looking forward.

Of course, as Larry J, mentioned, the lenders haven’t yet geared up for foreclosures. The problems with houses is that each case is individual, but lenders need to have consistent loss mitigation policies that apply across the board. They also need fraud prevention/audit systems to avoid fraud by employees, sellers, Realtors, etc…

I’ve read that some servicers prefer foreclosure to short sales because they can make more money through padded “fees” and “expenses” … sort of like Larry Birkhead’s $500K+ legal bills, I guess. Is it possible that certain servicers are the real obstacle to short sales?

This thread is great. When I read the first post by SD Realtor, I was puzzled by the lender’s action, too.

I learned so much. Thanks.

I currently work in the loss mitigation department at a major servicer and our job function is to review short sale offers on a daily basis. There can be multiple reasons why the lender does not approve a short sale. In this scenario if the borrower submitted the offer less than 30 days before the sale date the lender has already lost as much as it’s going to in the foreclosure process (except for 1 more month of holding costs) so the rational there is to just simply foreclose and get it done with. In addition, the lender has to take on the possibility that the buyer may not close even if the short sale is approved(buyer may not be able to find financing or walk from the deal) which would result in more holding costs if we have to take the property back to sale. Regarding the second lien holder issue, it’s not that the first mortgage lender does not want to agree to the shortsale, but if the second will not release their lien then there will not be clear title at closing and the seller (the borrower) cannot close on the deal. For the most part lenders are already on top of the game, but with the majority of California loans having 80/20s it easier to wipe out the 2nd lien holder at the foreclosure auction than try and negotiate with them to accept a significant loss on their lien (some of them are over 100k). I’ve had some lenders like HSBC and Wilshire accept 1k on 70k balances since they do understand that 1k is better than nothing. Some banks are easier to deal with than others.