As reported by the Los Angeles Times, and others, those servicers involved in the robo-signing settlement may now be forced to permit modifications, principle reduction settlements, and short sales. While the terms of this proposed settlement are still being negotiated, the impact of the settlement could have some positive effects for both short sale sellers and purchasers of short sales. As a result of the settlement, it would seem that banks would have to be significantly more flexible with respect to their determinations of value.
As it stands right now, it is often difficult to come to some sort of agreement with the short sale lender on the value of a subject property. Frequently, values need to be appealed using comps or a full appraisal conducted a certified or licensed appraiser. The Los Angeles Times compares distressed properties to “day old bagels”: the point being that banks need to reduce the price of their assets in order to unload their inventory. However, the additional costs associated with foreclosure don’t always make foreclosure the best option. So, even the most difficult lenders (if they are part of this proposed settlement) would now be compelled to consider short sale more seriously.
As an attorney and founder of a third-party short negotiating firm, I can tell you that at present the only party who thinks that a property should be given a distressed value is the buyer. Short sale lenders (particularly, short sales with Fannie Mae as the investor) are sometimes asking for above market value on their properties. Bank-owned homes are frequently listed with a sales price equivalent to market value—not the distressed value associated with vacant and abandoned homes.