Why would a mortgage company reject a short sale?
There are many reasons why a bank could reject a short sale offer. The most common are:
Short Sale Offer Price is Too Low. Banks will request an appraisal or a BPO (Broker Price Opinion) to determine the current fair market value of the real estate in question. If the bank believes it can make more money by taking the property through foreclosure proceedings, the bank will reject the offer. If a valuation appears to be inaccurate, there are ways for a short selling Agent to dispute the valuation.
The Short Sale Package is Incomplete. Banks lose documentation. It can be faxed, overnighted, emailed, and hand delivered. It doesn’t matter. If the bank has misplaced it, the bank will reject the offer, or make you start from the beginning. It is imperative to confirm the bank has a completed short sale package for consideration. An experienced short selling Agent e can be counted on to make sure the bank finds the short sale package complete and ready for the next step.
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 are capable of repayment can be rejected for short sale consideration.
The Seller does not provide required documentation. Most banks require a series of financial documentation from a Seller to review a short sale. If a Seller is not willing to provide, the bank will not think the Seller is serious about avoiding foreclosure. This is true, and VERY frustrating.
The Bank Sold the Loan. Sometimes that 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 does not have the authority to approve a short sale because it has sold the asset. This might seem unlikely, but this happens. The best way to know about this type of change is through the homeowner. A homeowner will be notified if their mortgage has been sold to another entity.
Insurance. Sometimes a bank receives insurance money only when they foreclose, so it financially benefits them to reject a short sale. This is often when mortgage insurance is involved. What a lot of Agents don’t realize, is if private mortgage insurance is involved in a short sale, they have another party to get an approval through.
Increasing market values. When market values are increasing, a bank may be less willing to short sale, because if they take years to short sale, that could mean much higher growth in value.