Short Sales - a Partial Solution to Foreclosure Mess

click on graph for larger image 

The nearby chart shows the percentage of all listings in the GLVAR multiple listing service categorized whether it could be considered Normal, a Short Sale or a REO (bank owned) for the weeks indicated. The Normal or Arm's Length listings amounted to 23% in August of 2008 (about when it became reliable to track this info) but had dwindled to 10% by the first week of this year and currently stands at 7%. Short Sales remained essentially unchanged from August to January but now rival the REOs as a percentage of all listed. That increase in short sales is due primarily, in my opinion, to the moratoriums that Fannie, Freddie & some of the larger banks instituted on foreclosures early in the year.

Now if you look at closed escrows listed in the MLS over the same time period the number of REOs has increased from about 70% of all transactions to its current 80% yet Short Sales have decreased from around 10% of all closings in August 2008 to 7% in March 2009.

The median price and median price per square foot obtained for a successful Short Sale transaction in January 2009 was 31.6% and 19% greater than the REO transactions, respectively. For February it was 30.7% and 18.6%; for March 21.5% and 18.4%.

My question is why aren't the banks and the Feds trying to expedite and enhance the number of successful short sale transactions instead of losing more than 1/5 the value of the property - not even taking into account the continued financial beating they take while the foreclosure process transpires?

Instead we find confusion and delay on the part of the loss mitigators (what a misnomer that is). Most real estate practitioners in our three offices and that I know in other offices generally avoid listing or selling short sales becasue of the brain damage you have to go through dealing with these financial institutions.  And then, more often than not, the transaction falls apart becasue of the extremely long period of time it takes to get any meaningful response from the institutions or they decide to change the agreed upon terms at the last minute.

One last thing: if we could get the financial institutions working on expediting short sale transactions over foreclosures think not only of the money saved but on the mental anquish saved on the part of those losing their homes. Their credit will be worse for the wear but not nearly so after a foreclosure goes on their records. Additionally, it would help solve some of the problems associated with foreclosure properties - deteriorating landscaping, deteriorating property values, damage to home owner associations who lose the revenue that can never be made up (they can only collect up to 6 months of monthly fees).

 I guess a solution that seems so simple is beyond the scope of the geniuses who represent us on a political level and who run our largest financial institutions. What a sad state of affairs and what a shame...