Factors underlying short sales

The short sale process has emerged as the most common alternative to the traditional foreclosure process in the recent mortgage crisis. This paper examines the factors that affect the liquidation outcome between these two ways of disposing the housing asset. We find that better quality borrowers such as those with higher credit scores and with full documentation status are more likely to prefer and obtain approval of short sales, involvement of mortgage insurance firms and second lien holders reduces short sales, and that state foreclosure laws such as longer foreclosure delay and the statutory right of redemption reduce short sales. The results have implications for ostensibly borrower-friendly measures promoted by governmental entities.