When the listing agent and the seller start the process of a short sale, there is no guarantee that the bank will accept the short sale. Simply because the property is listed on the MLS does not mean the bank is willing to do a short sale or that the offer will be accepted. So what are the reasons short sales do not go through?
First you need to know what a short sale is. A short sale is when the lender (bank) who holds the mortgage agrees to accept less than what is owed. Complicating matters more is that there may both a 1st and 2nd mortgage, in which both lenders must agree to the short sale. While they are called short sales because banks are agreeing to accept something "short" of the full amount, they are not short in terms of time. The process can be very lengthy.
Why Banks Reject Short Sales
Offer Price is Too Low
The price at which a property is listed in no way indicates what the bank will accept. Many agents list the property very low in order to get multiple offers, quickly. Once the offer is under review by the bank they will do their own appraisal or BPO to determine the value of the property. If they feel the offer price is too far off the mark, they will reject the short sale offer.
Even if the offer price is close to the appraised value, if the bank feels it would make more by foreclosing on the property they will reject the offer.
Incomplete Packet
When doing a short sale, the seller will be required to submit a financial packet. Typical items included are W-2 and tax returns for last 2 years, paystubs for last couple of months, bank statement for last 2-3 months, and a financial worksheet showing income versus expenses. The banks will not review incomplete packets and they are notorious for losing paperwork. It must be complete with the account numbers on all items. If the packet is not complete, the short sale could be rejected.
There is NO Hardship
To be included in the packet mentioned above is the hardship letter. The banks require a reason for considering a short sale. They will not just write off the debt because the seller decides they don't want to live there anymore. There needs to be a hardship and a letter explaining why the seller is requesting a short sale. If there is no hardship for the seller, the short sale can be rejected.
Seller Has Assets
Even if there is a hardship such as a job loss or other factor, if the seller has other assets the bank may want those sold or money brought in by the seller. If the seller does not agree the lender can reject the short sale.
Lender Sold the Loan
Short sales can take a long time and often times one department of the bank doesn't know what the other is doing. There are often times when you are in negoitations with the bank's short sale department and suddenly find out the loan has been sold and they no longer hold the asset or have the authority to approve the short sale. Since they do not own it anymore, they can not approve a short sale on it.
And finally, sometimes there is no reason why. All we hear is that "investors did not approve".
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