Lenders prefer short sales over foreclosure listings because home prices have been falling rapidly. Lenders have been considering short sales because they have realized that in many cases, they are losing more when they go through the process of foreclosure and selling the assets through foreclosure listings.
When lenders foreclose on a home, they undertake processes that include filing documents in court, sending notices, coordinating with property managers and selling through auctions or foreclosure listings. In addition to the costs of these procedures, the foreclosure process also takes time especially if the homeowners undertake legal maneuverings to delay the process and allow them to stay in the foreclosed properties for a longer time for free.
When lenders agree to a short sale, they agree to accept as full payment an amount lower than the mortgage loan balance. They lose in the process, but their potential losses in foreclosure could be bigger if the foreclosure process takes a long time and if their foreclosed properties stay in foreclosure listings for months or years.
