4 Reasons the Bank May Reject a Short Sale Request
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Home Page > Finance > Real Estate > 4 Reasons the Bank May Reject a Short Sale Request
4 Reasons the Bank May Reject a Short Sale Request
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Posted: Nov 03, 2010 |Comments: 0
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Clearly, the most important part of the short sale process is getting your request approved by the bank. Banks often reject short sale offers for various reasons. Before you proceed with your short sale request, it is important to know why a bank might reject a short sale request so you can prepare accordingly. Following is an overview of the reasons why banks may reject short sale request.
The offer price is to low: The bank will analyze whether it will lose less money through foreclosure or by means of a short sale of the property. They will request an appraisal or a BPO and a comparative market analysis to gain knowledge of the home’s current market value. Your short sale agent should have a good pitch as to why the home is worth what it is by showing comparable sales to support the offer price. That being said, the bank understands that they are not going to get full market value of the property. By nature, homes that are short sales have a lower market value due to the time and patience it takes to buy a short sale.
The short sale package is incomplete: The bank requires many documents to be submitted. Consult with your short sale realtor to see that you have submitted every relevant document. See that the purchase agreement, the financial worksheet of the seller, the listing contract, the authorization to release information, and all other relevant documents are properly arranged and submitted. You will also have to write a compelling hardship letter describing your financial condition and why you need a short sale to clear off the debt. A complete short sale package, including an offer to purchase must be submitted. You must pay close attention to every detail. If you put together a sloppy package, you could be adding months of delays to the process, and could be in jeopardy of the bank foreclosing because of it.
Disqualified seller: If the seller has capable assets and is reluctant to work out a repayment deal with the bank, then the seller might not qualify for the short sale. You must prove that you can no longer afford this house and that if the bank does not agree to a short sale, they will face a greater future loss when they foreclose.
Disqualified buyer: Simply having a purchase contract between a buyer and seller is not enough to satisfy the lender. You will need to prove to the bank that the buyer is pre-qualified for a loan or has the cash to buy the home outright. Part of submitting a complete short sale package is sending in a loan approval letter or proof of funds to purchase the property outright.
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Sean Crosier -
About the Author:
I’m Sean Crosier, the owner of Golden State Real Esate in Simi Valley, CA. In these tough economic times, many homeowners are facing foreclosure. On behalf of the homeowner, I’ll negotiate with their lender to get them to agree to a short sale. My primary goal is to not only get the lender to agree to a short sale, but to also to get them to release any right they have to pursue the debt after foreclosure.
In dealing with a short sale, it’s critical to have a strategic plan in place for negotiations. I have several contingency plans in place to ensure that we reach the best possible outcome for you.
None of the information provided is intended as legal and/or tax advice. Always consult qualified and appropriate professionals prior to making any decisions.
If you have any questions, please feel free to contact me through my website or by phone at (805) 520-0525.
Sean Crosier
Broker/Owner
Golden State Real Estate
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I was denied a Hamp mod due to NPV caculations. My lender will not explain these terms to me. They said they cannot help me. I need to short sale and get out. Can u please help me
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short sale, bank approval, foreclosure, avoid foreclosure, short sale package, short sale buyer
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I’m Sean Crosier, the owner of Golden State Real Esate in Simi Valley, CA. In these tough economic times, many homeowners are facing foreclosure. On behalf of the homeowner, I’ll negotiate with their lender to get them to agree to a short sale. My primary goal is to not only get the lender to agree to a short sale, but to also to get them to release any right they have to pursue the debt after foreclosure.
In dealing with a short sale, it’s critical to have a strategic plan in place for negotiations. I have several contingency plans in place to ensure that we reach the best possible outcome for you.
None of the information provided is intended as legal and/or tax advice. Always consult qualified and appropriate professionals prior to making any decisions.
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Often times an agent will list a home as a potential short sale and state the asking price too low. A short sale list price normally has no connection to the actual price a bank may accept. The list price may be too high to pull in an offer or too low for the bank to accept. The house needs to be listed at an appealing price to entice an offer from a prospective buyer, but not too low that the bank will inevitably reject it.
The seller may not qualify for a short sale opportunity. If the seller is asking for debt forgiveness and they have assets they are at a disadvantage if they are unwilling to work out a repayment plan with the bank. The bank will want to see documentation of their current financial status and a hardship letter from the seller that explains why they can not afford to continue making mortgage payments. The seller needs to explain what hardship they have suffered. Just wanting to walk away and get a cheaper house is not a reason to do a short sale and most likely the lender will deny the short sale request.
The downfall may also be on the buyers end. The desire that many prospective buyers have to purchase a home at a great (below market) price and the financial means to do so are two different are not contingent on one another. It is important to have a qualified buyer before an offer is made. Banks will require proof of funds or pre-approval letter at the time an offer is made. They want to see ability to obtain financing before starting any negotiations. If a buyer is unable to prove funds, the offer will be objected immediately.
It is extremely important to have assistance putting your short sale package together to submit to the lender. These lenders are overwhelmed and understaffed. If the package is not labeled or not packaged as they instructed, they may reject the short sale just because it did not meet their specifications. It is vital to include all the required documents at once. Although it seems simple, this may be the most common pitfall in rejected short sale offers.
There are many reasons why banks reject short sales. Short sales occur when a bank agrees to accept an amount for the sale of a home that is less than the balance owed. Typically, a highly motivated seller is looking to unload their mortgage obligation and avoid foreclosure.
The three most common reasons a property does not qualify for a short sale are: the offer price is too low, the buyer does not qualify, or the seller does not qualify for the short sale.
The Offer Price is Too Low
Typically, the bank will require an appraisal to establish the value of the home before going forward with any approval. The bank may also request a broker price opinion (BPO) be performed instead of the full appraisal. A BPO measures the home’s value by looking at the comparative sale prices of three recently sold homes in the neighborhood. This process is usually quicker and cheaper for the bank and is common with short sales.
Should the offer price be significantly lower than the BPO, a bank is less inclined to accept the offer for the sale of the home. It is the bank’s discretion whether or not to accept the terms of the offer.
A bank will typically weigh the cost to sell, cost to hold and foreclosure costs when making a decision to sell a home.
The Buyer Does Not Qualify
A bank will require evidence that a borrower qualifies for the home before accepting an offer from them. A borrower must be financially capable of purchasing a property. The items a bank will typically ask for are:
Credit report Evidence of sufficient assets to close transaction Preapproval lender from lender with sales price specifically detailed The Seller Does Not Qualify
If the seller is involved in foreclosure proceedings, the bank may consider holding the property. If the bank has already invested money into the foreclosure, they may want to hold the property and try to sell it themselves in the open market.
A seller should work with their lender to avoid foreclosure proceedings and keep all lines of communication open. A seller should contact their bank’s loss mitigation department and find the representative that can assist them. Once the relationship has been established, communicate regularly about pending offers to keep the bank from beginning the process of foreclosure.
If you are a buyer, keep in mind that a home listed as a short sale is not necessarily approved by the bank. The short sale advertisement does not indicate that a bank has approved a sale.
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