Not all short sales are good deals. Sometimes a listing agent will price the home way below market value to attract multiple offers, and it’s completely reasonable for a bank to reject an offer that is half the market value. However, some banks will reject ALL short sales, regardless of how good the deal is. Why? Because they’re greedy and stupid. And that’s why the government has had to step in to nudge them along, again. It’s also yet another reason why banks are arousing my stabbiness.

Why Reject Short Sales?
There are a few basic reasons why banks reject short sales:

  • The offer is way below market value. In this case they may actually be able to make more in foreclosure, but this is rare.
  • The homeowner can afford the payments, but doesn’t want to anymore. If the homeowner is trying to claim hardship and there isn’t a hardship, then the bank should rightly focus on homeowners who really are suffering.
  • Greed. If a bank still owns the loan, they may have it insured. If they settle, they won’t get as much as they will if they foreclose and the insurance kicks in. Unfortunately, then they’ll be stuck owning a house and may not get full value for it even with insurance.
  • Short-sightedness. It’s simple: banks are short-sighted. There’s no communication between departments and sometimes within departments. No one stops to think: if we sell this house at foreclosure, can we get more than this offer? That’s because the people in the short sale department don’t really know what the foreclosure department is doing.

The Downside of Rejecting Short Sales
When a bank goes to foreclosure, they incur a whole slew of additional expenses that they wouldn’t have with a foreclosure, including property tax, maintenance costs, listing fees, attorney’s fees, etc.

In addition, they automatically net more money if the short sale offer was decent. Let’s take an example where the market value is $650,000. The short sale offer is $600,000. After commissions and a credit for closing costs, the bank will net $558,000. Not bad.

In the area I’m considering, the average short sale price per square foot is $305. The average foreclosure price per square foot is $295. Right there you can see a difference. Assuming the house is 2000 square feet, they automatically net $20,000 less on the deal if they go to foreclosure, and that’s before factoring in the additional costs of foreclosure. I’ve seen reports of banks receiving short sale offers of $600,000 and selling the house at auction for $455,000! That’s nearly a $150,000 loss that can only be chalked up to short-sighted stupidity.

I’m sure the staffer rejecting the offer thinks, “This house is worth more. We’ll easily make $650,000 if we sell it as a foreclosure,” but the foreclosure department doesn’t have the same mandate. That department just wants to get rid of the house.

Other Stupid Bank Tricks
Of course, this isn’t the only way banks are stupid. They continue to offer big bonuses to CEOs who lose money. They continue to refuse to lend despite government pressure and funding. They continue to employ too little staff to manage the incredible workload of all these foreclosures and short sales. They continue to advertise themselves as your friendly neighborhood bank while screwing over everyone in the neighborhood. They continue to fail to establish uniform procedures and standards that are based on logic and efficiency.

And they wonder why we hate them?

Comments

One Response to “That Makes Me Stabby: Stupid Banks”

  1. Money Beagle on May 18th, 2009 4:53 am

    Well, keep in mind too that they’re not really going to lose that $150,000 you mentioned, because they’ll just go to their banking customers and raise their ATM fees and overdraft fees and lower their savings account interest rate from 0.10% to 0.07%. As long as Richie Rich gets his new tricked-out limo, I guess all is good in their eyes.

    Yeah, definitely hate banks more and more these days!

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