No, short sales do not always work. In fact, most do not work. The main reason is the bureaucratic inefficiency of the mortgage servicers and the overwhelming amount of cases that banks are dealing with now. Often it would be a win – win for the bank and homeowner if the maze of paperwork and contacts are navigated successfully.
If the bank flat out denies the offer, foreclosure is not always the next step. By utilizing the services of a qualified loss mitigation specialist, the homeowner may be able to modify the terms of the loan in such a way as to offer a better alternative to a short sale or foreclosure. The homeowner must be in a position to make the payments on the modified loan note and must be able to prove his income. Utilizing a professional with existing contacts in the loss mitigation departments of the major lenders can vastly improve the chances of successful loan modification.
If there is sufficient equity a new lender can refinance or make a foreclosure rescue loan that would bring the first mortgage current. This solution does not address the root problem of a “bad loan” and often leads right back to foreclosure. Moreover, in todays market with an average of 25% decline in house values, homeowners would be hard pressed to find enough equity to secure this type of loan which typically will not go above 65% loan to value.