Banks are so paranoid about short-sale fraud that they’re pushing homeowners into foreclosure–even when it costs the banks money:

Ms. Sweetland, 47, tried such a sale this summer out of desperation. She had lost her high-paying job and drained her once-flush retirement savings, and her bank, GMAC, wouldn’t modify her mortgage. After seven months of being unable to pay her mortgage, she decided that a short sale would give her more time to move out of her Phoenix home and damage her credit rating less than a foreclosure.

She owes $206,000 and found a buyer who would pay $200,000. Last Friday, GMAC rejected that offer and said it would foreclose in seven days, even though, according to Ms. Sweetland’s broker, the bank estimates it will make $19,000 less on a foreclosure than on a short sale.

With all the recent publicity about mortgage fraud and loss of documentation by the mortgage lenders you would think they would wise up and agree to short sales that are in their financial interest, so we could get out of this foreclosure mess. But the banks want everything their way, so even when you agree to a short sale you have to watch out that the banks are not going to come back and sue you on a deficiency that you could have gotten canceled by letting the property go into foreclosure. “Banksters” indeed!