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Peaceandpowe…, Real Estate Pro in Bell And Hurd, Paine...

When does the bank not approve a short sale?

Asked by Peaceandpowerparenting, Bell And Hurd, Painesville, OH Thu Oct 25, 2012

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So Cal Homes 951-821-8211’s answer
Why does the bank not approve a short sale?
The Banks ask for a fair amount of info from the short seller and some from the buyer.
This info gets checked out and confirmed. sometimes there may be some inconsistencies causing a denial.
The bank has the OPTION of accepting a short sale they do not HAVE TO nor are they obligated.
A denial may be because of
the price of the home
the seller makes enough to pay their bills
the buyer is known to the seller
the bank or the true owner of the note simply says no
the listing agent fails to negotiate or communicate or proper paperwork
the seller fails to provide information in a timely manner
the bank feels they can foreclose later and make more on the home
buyer backs out



Harold Sharpe - Broker
So Cal Homes
(951) 821-8211
harold@southerncaliforniashortsales.org
http://www.southerncaliforniashortsales.org
California Department of Real Estate Broker License # 01312992
0 votes Thank Flag Link Sun Oct 28, 2012
There are several reasons a bank will decline a short sale request.

One reason is they feel that the price agreed upon by the buyer and seller is too low. The bank will do their own appraisal, which may or may not be an accurate estimate of current value, and make their decision based on that. Unfortunately, sometimes sellers and their agents market the property at a price that is too low thinking that the bank will approve any price they submit.

A second reason is that they feel that there is not a hardship on the part of the seller. If the seller has not missed payments and/or shows enough income to make the payments, the bank will not approve the short sale.

A third, less frequent reason is that the bank feels that the sale is not an arms-length transaction and that there is fraud involved in the sale. Also the bank will not allow any of its employees to be a buyer of a property that they hold the loan on.
0 votes Thank Flag Link Thu Oct 25, 2012
HI agree with Toni's response below. Typically, the bank feels they can get a better price than the price that is being offered. This is often not the case - the banks are not in real estate. That said, the mortgage on it may be way higher than the sale amount and the bank does not want to eat that loss.

The other main reason I've seen short sales rejected is the bank does not feel the seller has a verifiable hardship. They look very carefully at income. I've had a couple of short sales turned down personally. In these cases, one couple made a little over $100K...which is not a lot to raise a family in San Diego - but the bank deemed that income as 'Not a Hardship.'

The other area I've seen rejected is when a seller is short because he/she cashed out their equity. The banks feel (rightfully so) that the sellers took their equity and now expect the bank to pay for it.

Hope that offers a little more insight...
0 votes Thank Flag Link Thu Oct 25, 2012
This may be a little involved for a forum like this, but I will take a stab at it. I think the main reasons that a bank would not approva a short sale are:
1) The bank is too busy and just can't get to it. This happens more than we like.
2) The offer price is not close enough to what the bank thinks is market value. I have heard multiple times that a bank is looking to get at least 88% of market value.
3) The bank does not think that the rest of the terms and conditions (other than price) are attractive relative to other options.
4) The bank does not think that the Seller is in a real hardship situation, and that they think they can get the Seller to make good on their mortgage.
These are the ones that come to mind for me. Anyone else?
0 votes Thank Flag Link Thu Oct 25, 2012
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