It might help if you can get an explanation in writing as to what their specific objection of your financing package is based upon so you may have the opportunity to resolve the problem. My problems usually stem from the loss of value in a property failing to be sold in a declining area market. There are thresholds and ratios lenders consider in order to fund a purchase.
FHA loans are insured at approximately 82-85% of the current market appraised value.
VA loans are guaranteed at approximately 88-92% of the current market appraised value.
It may be possible that the ratio required by most banks may be off based upon the property's valuation, or the lender may be aware that the continuing decline in value may make your bid a moot point with the VA.
These theoretical funding thresholds represent a percentage of the current market value of a property, which may not necessarily mean that the loan balance, or your purchase offer, is causing the issue at hand.
Currently, I believe the Conventional threshold is approximately 85-93% of current market value (which fluctuates with the market and is usually lender-specific). I usually have had to check with the individual lenders to discover what their specific policies are for accepting and submitting bids on foreclosures/short sales. Some institutional policies are flexible and implemented at the discretion of a bank's management, while others are written down and "set in stone" as a list of strict requirements to be checked off and complied with. The ultimate goal of the bank is not to have a REO on its books, so they may decide to work with you if you can overcome their objection to your financing package.
I'm having a problem right now with an owner and bank hammering out a deal to sell a property in pre-foreclosure. We've been asking for the loan payoff amount since March and so far haven't been able to get the information in writing (or a verbal for that matter), which is holding up the acceptance or rejection of a current offer on the home. I understand your frustration at such a cryptic rejection regarding your VA loan. Hang in there. Good luck with your purchase.