[quote author="irvine_home_owner" date=1238196895]Someone pointed out in the comments there are no regulations for short sales. But I do remember something about not being able to use TARP money for non-owner occupied properties (I haven't read the TARP). Of course, BofA can claim that the debt isn't being forgiven with taxpayer dollars (since there is zero accountability) but this just bothers me.
Also, the fact that he stopped paying his mortgage but still collected rent makes this whole thing worse (unless the tenants moved out prior).</blockquote>
This is correct. Short sales can, and frequently do, happen to non-owner-operated properties all the time. Well, at least such are listed-whether or not the bank accepts them is another story. A short sale is a standard write down. It's no different than a credit card company accepting half of what they are owed on an old account, or bond holders accepting the company to pay them 50 cents on the dollar from a failing company.
Even though banks have taken TARP funds, this is a business decision not directly related to taking said funds. Now, another thing that investment properties don't qualify for are all of those government programs that intend to keep people in their houses by lowering interest rates and principal and stuff. But most of those programs don't really have any teeth in them anyway. It's also to foreclosure on a non-owner occupied property (although evicting the tenants is just as hard).
Now, frequently there is PMI involved, so, the bank actually makes more money if they foreclosure and sell it themselves, because they can collect on the insurance. This is why short sales attempts rarely result in actual sales.