Top 5 Reasons Why Banks Reject Short Sales

Unless a bank has agreed to a short sale upfront (which is rare), no one knows for sure if a short sale will be accepted or rejected by the bank or lender.  The seller and listing agent can hope to sell as a short sale and the bank will take the short sale offer.

Short Sale List Prices

The list price of a short sale home has little bearing on the actual acceptance of the bank on the purchase.  The list price may be too high to attract an offer, but if it’s priced too low the bank may not accept the offer.  Some agents advertise short sales at unbelievable prices, in hopes a buyer will be willing to submit an offer.  There is no guarantee if the seller accepts the offer that the bank will agree to a short sale.

Short Sale Definition

Short sales happen when a bank agrees to accept less than the amount of the mortgage the seller owes to the bank.  The property may have 2 loans or one loan.  If it has two loan, then both lenders must agree to accept a short sale.

Why Banks Reject Short Sales

Banks demand plenty of documentation before approving a short sale.   Sellers do not need to be in foreclosure or have fallen behind in making payments on their mortgage for a short sale to occur.  Here are a few reasons why a bank may turn down a short sale request:

• Short Sale Price is Too Low – Banks will request an appraisal and will order a BPO to get an idea of how much the property is worth.  When the listing agent submits the short sale offer, the agent must include a comparative market analysis to justify the offer price.  If the bank thinks it can make more money through foreclosure proceedings, the bank will reject the offer.
• The Short Sale Package is Incomplete – Many times the bank will lose documentation.  Every single document is required for a sale to be granted.  Make sure to ask for a list of documents, make copies and send the complete package to the bank or lender.
• The Seller Does Not Qualify – If the seller is asking for debt forgiveness, the bank will want to see a hardship letter to explain why the seller cannot afford to pay back the difference.  Sellers who have taxable assets are at a disadvantage if the sellers are unwilling to work out a repayment plan with the lender or bank.
• The Buyer Does Not Qualify – A desire to buy a home and the financial means to afford a mortgage payment does not mean a buyer qualifies to buy a home.  A buyer’s lender will look at credit history, length of time on the job, debt ratios, and other borrower qualifications.  To gain credibility with seller’s bank, the buyers must submit a loan prequalification or preapproval letter with the offer (pre-approval letters carry more weight).
• The Bank Sold the Loan – Sometimes the bank will not realize that they no longer hold the mortgage on the property till many months after the short sale negotiations.  If the loan has been sold to another bank, the bank has no authority to approve the short sale since they have released the asset.  The seller may continue receiving statements from the bank, the bank may be servicing the loan but may not own it.  Make sure to ask the title company to check the public redocrds for an assignment of deed of trust or other documents that reflect the loan has been sold and redirect the short sale package to the new lender.