Put cash offer on a short sale, received closing date but the deal fell through stating the seller couldn't get approval. Is this possible?

Asked by Deniz, West New York, NJ Fri Jan 6, 2012

I am a first time home buyer. I put my offer on the appraised market value for the home, which was also the asking price. I sent my down payment and received Jan 30th closing date. About 2 weeks after I was informed that the deal might fall through, which it did. Apparently the seller couldn't get approval from their lender. Is this normal?

I feel like something fishy is going on. Even if they put the home back on the market, I had matched the appraisal value. In this market I would assume, especially a cash buyer, would not want to pay more than market price.

Any help & explanation would be greatly appreciated. Thank you!

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Meena Gujral, Agent, Pleasanton, CA
Fri Jan 6, 2012
Hi Do,

There are many short sales that do not get approved.A good agent should know when taking the listing what their chances are of getting the approval. The banks have to be sure that there is a real financial hardship.

The seller needs to cooperate with the bank by showing their last 2 months bank statements, pay stubs, tax returns etc. If the Bank sees that there is money in the Bank account or their income can substantiate their mortgage payment, they will not allow a short sale.

I am so sorry that your time was wasted in the process.When you put in an offer on the next short sale property, make sure you have your realtor find out if the seller's agent hasany experience with short sales because that can make or break the deal.

I do a lot of short sales and I have a 100% success rate in getting every one of my short sales approved. Right now I am working on 4 of them. Two of them have been approved, and we are waiting for the buyer's to close. One just countered $5K more this morning and the fourth one is still in the document collection stages.

Meena Gujral
Help-U-Sell Achievers Realty
3 votes
Francesca Pa…, Agent, Manasquan, NJ
Fri Jan 6, 2012

I'm am going to DITTO Mary's response. Unfortruantely, you never know what is going to happen with a short sale. Unfortunately, there are many too many Realtors who list short sales without any experience, therefore list price has little credence in that instance.

Howewver, the fact that you offer appraisal pricee leads m,e to believe that what is owed on the property is far greater than the current appraised price. In this instance, many sellers make a valiant efforrt to do right and sell their homes at market value,but the banks just don't get it (in my view). Case in point, I had a short sale listed for sale and my buyer wanted to pay cash close in 30 days or less. The bank came back with as ridiculous amount and the buyer walked. In the end, the proiperty after foreclosure sold for LESS than what my buyer offered! GO FIGURE.

What I am told is that in some cirumcstances due to liens on the property (which is difficult for any realtor to determine without a title search) banks will prefer to go through foreclosure process as it voids all liens . . .. then they can sell it free and clear.

sorry for your inconveneince.

Freancesca Patrizio, Broker Sales Associate, ePro, SRES
732.606.2931 (Direct/Cell 24/7)
Web Reference:  http://www.PatrizioRE.com
1 vote
Mary Petti, Agent, Edison, NJ
Sat Jan 7, 2012
Do ,

As for my mentioning "other factors", here's a few other situations that can cause a short sale to be denied.

If there is more than one lienholder ( ie: first and second mortgage), then technically there are two investors looking for their piece of the pie, and this adds an additional level of negotiating and problems with getting the short sale approved. Primary lienholders get "first dibs" at payment. Often times the second lienholder will not accept even less of a % of what's owed them than what the primary lien holder is getting.

I had a situation with just one lien, where the home appraised (by a licensed appraiser) at $196,000...offer was $196,000. Amount owed was $234,000. Bank said they would only allow short sale IF the seller came to closing with $32,000 AND signed a note for payment of $75/month for 90 months. This was because the bank was not willing to take such a hit (18% less) than what was owed to them and basically wanted the seller to pay the difference (no forgiveness of the debt so to speak)
Well obviously if the seller had $32,000 laying around the seller would not be in a short sale situation. I was able to successfully negotiate with the bank to remove the contingencies. However, sometimes this negotiation cannot or does not happen and the seller has to walk away from the short sale and let the bank go to foreclosure.

There are so many reasons a short sale can go awry. Most times it's not the sellers fault, but the banks.

I do agree with John, that you should have been told that there is ALWAYS a chance the short sale will not be approved. I wrote a blog about the short sale process. It's a good primer on how the process works, although it talks about the process going from beginning to an actual approval :

0 votes
John Sacktig, Agent, New Jersey, NJ
Sat Jan 7, 2012

Going forward in buying a home, It seems to me that you need to be in touch with an agent that has more experience in short sales, foreclosures and selling homes in general. Your situation is pretty basic and you should have been informed of how this particular transaction would develop and what "could" happen.

it is tough buying a home in today’s market and you need experience on your side.

Call or email and lets discuss what your wants and needs.

John Sacktig
Broker / Manager
Orange Key Realty
Direct: 732-213-1409
0 votes
Mary Petti, Agent, Edison, NJ
Fri Jan 6, 2012

Short answer is "YUP". Normal and quite common and nothing fishy there. If you aren't aware, a short sale is where the deed owner cannot sell the house for what they owe on their mortgage, therefore the current sales price creates a short fall in payoff money. IE: I owe $200,000 on my mortgage, but can only sell my home for $150,000 at fair market value....The bank must approve the sale getting $50,000 less than they are owed.

Just because the "owner" accepts an offer (even at appraised value), it's ultimately up to the bank to approve a short sale (and the file goes through many, many hands) at an acceptable "loss". Meaning that the bank, and the investors may not be willing to take that large a loss OR the bank may not think the "seller" proved enough hardship to warrant the short sale or a combination of both, or other factors may also come into play .

I understand it's very frustrating, but in my experience with banks and short sales, they don't always look at it realistically or even with any common sense. It's all a numbers game and sometimes both the seller and buyer fall victim to the banks and their investors decisions.

Good luck with you house huntings. The house you made an offer on is now the problem of the bank (who may get even less in another sale or if it goes to foreclosure), and the seller.
0 votes
Gina Chirico, Agent, Fairfield, NJ
Fri Jan 6, 2012

Unfortunately and as stated below, short sales can fall through. You should have been told from the beginning that with a short sale, even if the seller accepts your offer, agrees on a closing date, etc. the bank still has the final say. In a short sale the seller owes more to the bank than what the house is worth and the seller is asking the bank to accept less and have the seller walk away from the home. Unless offered what is owed on the home, the bank can and does say no.

With that being said, you stated that you offered the appraised market value of the home. Where did you get the appraised market value of the home from? Was an appraisal done? Were you supplied recent sold market data of comparable properties to derive at your offer and to know what the true market value is? The bank will use the most recent sold comps to derive at their price of what todays value is, sometimes known as a BPO. If those numbers don't match and sometimes even if they do, the bank will still say no and eventually foreclose on the property. The bank will do whatever it needs to do to lose the least amount of money on a home even if that means denying a short sale. I'm curious to know was the seller denied a short sale altogether (meaning the bank will not let the seller short sell the home and/or accept less than what is owed without the seller being on the hook for the balance) or was your offer denied?
0 votes
Jennifer Bla…, Agent, Basking Ridge, NJ
Fri Jan 6, 2012
Ah, short sales can be so frustrating! There are so many questions that need to be asked - even when an agent knows what they are doing they can run into road blocks. I wouldn't attempt a short sale without an agent. If it's a good deal and you have a lot of time to wait for the approvals it could be worth it. Find out why it wasn't approved, maybe something can be done.

I'm sorry!
0 votes
Scott Godzyk, Agent, Manchester, NH
Fri Jan 6, 2012
The sale is never approved in a short sale until teh offer is submitted, an appriasal is done to get current market value and the short sale approval is apprioved in writing. The bank does not set asking prices. you do not say if porice was the problem or if teh seller did not quailify to complete a short sale. You should ask the listing agent.
Web Reference:  http://www.ScottSellsNH.com
0 votes
John Sacktig, Agent, New Jersey, NJ
Fri Jan 6, 2012

This states to me that the agents involved do not have much experience with short sales.

What should have been explained to you was that although the "homeowner" has accepted your offer, you have no accepted offer until the bank says you have an accepted offer. Which in this case you did not.

Some will have you go into an "attorney review" period, have you do inspections.. All that cost you money..When in fact there is no deal, no accepted offer at all.

I hope you did not spend any money ion inspections and such!
0 votes
Anna M Brocco, Agent, Williston Park, NY
Fri Jan 6, 2012
Your agent and or attorney can best advise, therefore consider a consultation; it's possible that the seller did not prove hardship to the lender, may not have submitted proper documentation, etc.; again consult with your agent and or attorney.
0 votes
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