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Why Short Sales are Rejected

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Unless the bank has agreed upfront to accept a short sale which is rare, no one knows for certain -- not the buyer's agent, not the listing agent nor the seller -- if a short sale offer will be accepted or rejected by the bank. Simply because a listing is advertised as a short sale does not mean it is a short sale. It means the listing agent and seller hope it will sell as a short sale and the bank will take the offer.

Banks demand a plethora of documentation before approving a short sale. Here are reasons that banks turn down short sale requests:

 

  • Short Sale Offer Price is Too Low

    Banks will request an appraisal, sometimes several appraisals, and may also order a BPO.  When the listing agent submits the short sale offer, the agent should also include a comparative market analyis (CMA) that justifies the price in the short sale offer. If the bank believes it can make more money by taking the property through foreclosure proceedings, the bank will reject the offer.

  • The Short Sale Package is Incomplete

    Ask any short sale specialist and you'll hear horror stories of how banks lose documentation. In some cases, it doesn't matter how many times the package is expressed overnight or faxed, the bank might misplace it. Worse, an important document might not be in the file, and without every single required document, the sale will not be granted.

  • The Seller Does Not Qualify

    If the seller is asking for debt forgiveness, the bank will want to see a hardship letter from the seller that explains why the seller cannot afford to pay back the shortfall difference. Sellers who have tapable assets are at a disadvantage if the sellers are unwilling to work out a repayment plan with the 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 examine credit history, length of time on the job, debt ratios, and a host of other criteria to determine a borrower's qualifications. To gain credibility with the seller's bank, buyers need to submit a loan prequalification letter along with the offer, but a preapproval letter carries more weight.

  • The Bank Sold the Loan

    Sometimes, the bank won't realize it no longer holds the mortgage on the property until many months have passed by during short sale negotiations. If the bank has sold the mortgage to another lender, the bank has no authority to approve a short sale because it has released the asset. Although the seller may continue to receive statements from the bank, the bank might be servicing the loan but not own it.