Efforts by distressed homeowners to avoid foreclosure listings through short sales have become more difficult as mortgage lenders, investors and lienholders take more time in agreeing among themselves how the short sales will be carried out. In a typical short sale, the mortgage lender allows the borrower to sell the property at a price lower than the loan balance and accepts the sales proceeds as a complete payment of the loan even if the total of the sales proceeds is lower than the loan balance.



The case of Aaron Palmer is illustrative of how short sales are becoming more and more difficult to accomplish. At first, he initially succeeded in convincing his lender to agree to his short sale proposal of $140,000. At this price, he would get nothing, but it is a better option to him because he does not want his record tainted by foreclosure listings. After completing all the paperwork and other requirements, the lender suddenly demanded $10,000 more. Before he can work out something with his buyer who is even willing to waive inspections, the lender sold his home at an auction. What really angered him was that the final sale price has been only $1,000 above his buyer's price.

Bank of America spokesperson Rick Simon said delays in short sales are caused by investors demand for proofs that the borrower has tried all options to head off inclusion in foreclosure listings and that the short sale price is higher than the price in foreclosure listings. He also said the bank has to go through lowball offers from speculators and more realistic offers from brokers and homebuyers. Agreements from second lienholders to the proposed short sale also need to be obtained. In addition, short sale documentation also takes time. The borrower needs to submit complete financial statements and documents describing the current condition of the home.

Steve Storti, senior vice president of Prudential Fox and Roach, the share of short sales in total real estate sales is about 15 percent lower in regional charts. The impact of foreclosure listings on median home prices in a region will determine short sales' percentage in the area, as illustrated in Philadelphia's case which has much lower percentage of properties in foreclosure listings compared to the national trend.

According to the National Association of Realtors, short sales are uncommon. But because of unending foreclosure listings across the country, the number of short sales had risen to 13,000 in the last quarter of 2008. Foreclosure filings are expected to increase as foreclosure moratoriums end in March, in time for President Obama's full launching of his administration's $75 billion program to mitigate foreclosure listings.