A popular theme in the responses we have received to our request for feedback from the foreclosure front has been the confusion, delays, and inflexibility on the part of mortgage servicers in handling "short sales."

Short sales are requests to discharge mortgages when a third party is willing to purchase the property for an amount "short" of the total owed on the mortgage.

Complaints about the short sale process came in from homeowners who had offers to purchase their distressed properties, from investors, or from real estate agents who were hoping to put together short sale deals. Most of the letters mentioned specific lenders/servicers as responsible for their problems; however, given our longstanding aversion to litigation we have purged all names. Suffice it to say that most of the usual suspects were targeted.

Nearly everyone remarked on the perceived inflexibility of lenders on price and the amount of time, paperwork, and aggravation involved in getting a short sale approved - or even rejected.

A reader and Realtor' from Utah commented on both aspects. Saying that he specializes in both listing and buying short sales for his own portfolio, he stated "Since I started about 2 years ago I have never had my cash offer to the bank accepted in less than three months; 11 months is the longest I had to wait." He went on to say that lenders have been slow to realize that property values are falling. One property he has listed for $75,000 has an appraisal for $78,000 with $60,000 being the best offer he has received so far. The lender holds a note for $110,000 and they have postponed the foreclosure auction three times yet "they are refusing to accept the fact that the property is worth half of what they lent on it."

A Nevada correspondent - and judging from his email address also a real estate agent - wrote, "I have found trying to close a deal via a short sale gets bogged down with lawyers. It seems they only care about their fees and billable hours rather than helping resolve this mess. Some type of streamlining would certainly help. It seems that the banks are still asleep at the wheel. It is very discouraging."

Another real estate agent in the Bay Area of California said he recently had a "ready, willing, and able buyer to purchase a property as a 'short sale.' The home had been on the market for months prior to our bid. It took three months for the lender to get back to me and my client and then only to notify us that our offer was declined. The lender felt they could get more money later, (after the property was foreclosed). One month after the foreclosure the property was back on the market for the exact amount of our original bid four months earlier."

Loss mitigation departments are where workout and short sale proposals and decisions are processed for the banks and for mortgage servicers. Another real estate agent, who did not list his home base, wrote the following:

"Our experience is that the loss mitigators are so backed up and take so long to do anything (60 days in the case of (one lender) to even begin the process) that homeowners are being hurt terribly. Even if the homeowner is proactive and hires a real estate agent who has experience in short sales, the likelihood of the sale being successful has very little to do with the actual offer being received. No real estate agent has the time to spend a couple hours a day on the phone trying to push the bank to a decision. Some banks are even putting up barriers to communicating with the mitigators like refusing to transfer calls to them unless the mitigator requested the call. It is a real catch-22 because the mitigators don't have time to actually call anyone.

"In the end this hurts everyone. The homeowner loses their home to foreclosure and irreparably damages their credit. The real estate agent does a ton of work but doesn't end up getting paid, and the banks are stuck with owned real estate that will inevitably sell below any offer they received pre-foreclosure.

From Georgia: "I called (major servicer) last month to present an offer from my company to purchase a nearly new home in the Savannah area. We had a signed purchase and sale and were guiding an unschooled homeowner through preparing a complicated package of financial info for the lender. We asked for a short delay in the foreclosure that we had been told was scheduled for less than a week later. Not only was the servicer totally wrong about the date of the sheriffs sale, the she insisted that her company never, ever granted postponements unless a deal was approved and that only a completed package would be reviewed for approval

"We deal with short sales all of the time and we have never known a major lender to refuse to allow a little time for a deal - without even knowing the sale amount - to come together."

Quite a different take on the short-sale situation, however, came from a reader who is in the business of loss mitigation and has "been assisting home owners and commercial property owners to short sale their properties nation wide." He sees the banks as being a little victimized themselves as more and more investors look to profit from the current mortgage mess.

"We have been doing this for 17 years and have seen a dramatic change in the way banks work. Their slow ability to respond to short sellers is of great concern. Banks are simply unable to respond to the very large number of individuals trying to resolve their defaults. In our opinion the large number of "so called" investors and short sellers who try to flip or double close and make a hefty margin creates tremendous delays on the already burdened loss mitigation departments. Banks are much better equipped now-a-days to recognize these "investors" and in most cases these deals won't fly but the "traffic," with short sellers calling and sending offer packages to lenders affects the possibility that what we call honest short sales will be completed efficiently. We do short sales for fair market price; a far better solution for both borrowers and lenders who can receive much more for their defaulting loan. Our success rate remains very high but we have to be selective about who we help. Certain banks are simply unable to process the short sales. We have seen many buyers losing patience.

"Another issue is that banks are slow to understand that the markets are moving down. In many cases they stick with appraisals based on six-month old comparables and don't take into account that a property they are not willing to sell for fair market value will end up on their books and will become a big financial burden.

"There is no doubt that REO (real estate owned) portfolios are much larger than they have to be. If banks don't hire and train more loss mitigation specialists their losses will be staggering. Usually a short sale takes 2-4 months to complete but we have seen cases that lasted 8 months even with a good offer and a willing buyer."

In part three of this series we will tell you what we are hearing about that old advice to "be proactive, contact your lender."

We would love to hear from you if you'd like to share your story.