Many troubled homeowners who were desperate to make a deal with their lenders to sell their distressed properties for less than the amount they owed on their mortgages are seeing those deals fall apart, contributing to the growing number of foreclosed homes that threatened the recovery of the housing market.
Short sales or the process of selling distressed properties by homeowners at less than the amount of their unpaid loans are being touted by the federal government as alternative to foreclosures. Lenders’ agreement is needed for the success of short sale deals. The method allows delinquent borrowers to wipe out the loan that they could not afford to pay, while lenders get to avoid the expensive cost of filing and completing a foreclosure.
However, industry analysts said that many distressed homeowners are having difficulties dealing with lenders. Analysts said that buyers turn their backs on potential deals because homeowners are having difficulty contacting their lenders. In some cases, after contacting their lenders and waiting for several months, homeowners would find out that lenders have lost the documents necessary for short sale deals.
A market study showed that there were only 23 percent completed short sale deals. The study also pointed out that 90 percent of short sale deals failed because of lengthy delays and slow response from lenders.
Industry analysts pointed out that the lengthy delays on the lenders’ side are extensive and a threat to whatever progress is made towards the recovery of the housing market. They added that instead of being an alternative to foreclosure, short sales are turning out to be a cause of foreclosure.
The study pointed out that short sales is gaining popularity among homeowners, particularly those who have just lost their jobs and could not afford to pay their mortgage because of loss of income. Data showed that short sales accounted for 11 percent of all home sales deals in June.
Additionally, the study noted that some of the delays are caused by agents who failed to prepare sellers and buyers for the lengthy time it will take to complete a short sale deal. Furthermore, short sales may fail because some lending institutions lack staffing numbers and expertise to deal with the process in a timely fashion.
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