Banks Backing Away From Short Sales

With the improving economy, banks nationwide are becoming more reluctant to engage in short sales, according to a report from BusinessWeek last Friday. A year ago, many banks looked at short sales as the best way to get the most money back on bad mortgage loans. But according to the report, many banks have already written off the losses and are reluctant to negotiate a short sale, forcing homeowners to pay more at closing or requiring a promissory note on the remainder of the loan.

Short sales became widely popular with the real estate crisis of the past couple years. A short sale can happen when the home owner's mortgage meets or exceeds the current value of the property. In a short sale, the lender agrees to take a discount on the mortgage. The home owner sells the mortgaged property for less than the outstanding balance on the loan and turns over the proceeds of the sale to the lender. The lender has the right to approve or disapprove the sale. Short sales are generally used as a way to prevent a home foreclosure, but the decision to proceed with a short sale is determined by the bank which is looking for the best way to recover the amount owed on the property.

According to First American CoreLogic, one-third of borrowers owe more on their mortgages than their properties are worth.