Lender goes to foreclosure when short sale buyer willing to pay more, WHY?

Had a short sale buyer within 1 wk after putting house on market and before 1st payment was officially late. 9 months later Citi let go to foreclosure and set market value $40k less than short sale offer. Doesn’t make logical business sense to lower price & add additional expense of selling. They never made any effort to work with us during 9 month process.Do they get incentives for going to foreclosure?

It is almost impossible to know the answer. You are in very good company with the number of properties that have gone to sale even though the short sale offer appeared to make more financial sense than a foreclosure.
The first thing I would look at is who the originating lender was on this loan. If it was a lender other than Citi then Citi may be the servicer for the investor. They may also have purchased this loan on the secondary market and there may have been lender paid mortgage insurance that covered them against any losses if they foreclosed. Although lender paid MI was a short sale deal killer a few years ago we did see MI companies start to approve short sale but now it appears (my opinion) they would rather deny the short sale now and take the loss later.
There could also be other government buy back programs in place. The investor may be sending this loan off to Fannie Mae or Freddie Mac as an example. Since the actual investor is unknown it is very hard to tell who made the call to let the property go to sale as opposed to approve the short sale. I am afraid that there is no answer to your question. BTW, this is one of my biggest peeves. The government supports the lenders and the lenders do not give any clear cut rules or guidelines to homeowners or agents. It is like playing in the super bowl without a rule book. Can you imagine the outcry if we said just play the game and try your best and we will hopefully be able to determine who should be the winner (BTW it could take a few months). There would be riots in the streets!
You can read more about this in our ForeclosureTruth blog http://www.foreclosuretruth.com/blog/sean/time-for-troop-surge-on-the-front-lines-of-the-housing-crisis/.

This is such a curious question. Some people like foreclosure, other short sale… What’s the best?

This is a very subjective question and will depend on a number of other factors, including but not limited to, the number of open loans, do you have a purchase money loan or have refi’d and pulled cash out, are you considering filing bankruptcy, is your lender easy to negotiate with on a short sale, what is your hardship, what are your future homeownership plans, etc. You would want to consult with a qualified realtor, tax advisor and/or legal advisor to determine the best course of action for your specific situation.

I would have to say with my experience in short sales and Citi. This is most likely the agent you have not keeping up with Citi and being in constant contact. Also, the agent should be able to escalate this file if its not to late. If it has not foreclosed yet… A good agent can probably stop it. I have never failed on a short sale and have closed 30_sales in the last year in Northern California. My background is not Real Estate but I have a passion for getting the job done. Many agents are good but their are more that should never take a short sale listing. If approx 80% of short sales fail, that means 6 out of 10 times you have a agent not qualified to do the job. and the other 2 are probably iussue with the bank or seller.