11 Reasons Why Most Short Sales Aren’t Approved

A short sale in real estate is when a property is sold at a price less than the amount owned by the homeowner to the mortgage company, and the mortgage lenders accept the short payoff. A mortgage lender will take the ‘short’ payment if the borrower can continue making monthly payments on the loan if they do not have money to pay the loan all at once.

So why do homeowners opt for short sales?

  • To avoid foreclosure – If a lender cannot make their mortgage payments, they are likely going to face foreclosure, and they can undergo the proceedings of a foreclosure. They opt to sell the property at a lower price than go through foreclosure.
  • They do not have money to continue paying the mortgage – If a homeowner does opt to have money to pay their mortgage, they choose to short sales the property and use the money to pay their loan debt. If the money is not enough, they can continue making monthly payments until their debt is cleared.
  • The homeowner may be moving to a new location – Sometimes a homeowner may want to move, but they cannot find a buyer to buy the price at its original buying price or higher. This may lead them to opt for a short sale. Since they will be selling at a lower price, it will not be difficult to find a new buyer.

11 Reasons Why Most Short Sales Aren’t Approved

1. The homeowner does not have a valid reason for not paying the mortgage
For a mortgage lender to accept a short sale, the seller must have a valid reason for selling. Usually, it could be they cannot afford the mortgage payment, or they are moving and want to sell the home. If the seller does not have this kind of reasons, it will be difficult to convince a mortgage lender to a short sale, and undergo the losses.

2. The mortgage lender prefers foreclosure
Sometimes the prices of the short sale may be too low than the original price, making the lenders opt to foreclose. If the lender determines that the payout from a private mortgage lender will be a much larger loss, they prefer foreclosure. This way your short sale will not be approved.

3. Property title is unclear
The property title must clearly state that you are the homeowner. If the details are unclear, the mortgage lender will not approve your short sale. You could be running a con game. You as the seller must have all the necessary documents, title inclusive that prove you are the homeowner, the buyer or someone left that particular property in your name, making it yours.

4. The homeowner has filed for bankruptcy
Bankruptcy declaration is grounds for disapproval. A lender will not approve the short sale if you are declared bankrupt. This is because in the case that you cannot pay the full amount at once you are expected to make monthly payments. If you are bankrupt, you cannot make these payments. Therefore, your short sale request will be denied. The lender must be certain that you can pay your loan balance.

5. The mortgage lender may have approved the short sale by the homeowner refused to make payment to reduce loss the bank will incur
By approving a short sale the lender will be making a big loss since the property is being sold at a lower price. However, the homeowner and the bank could agree that the homeowner will make payments to cover the loss the lender will suffer after the short sale. If the homeowner is not willing to make these payments, their short sale will not be approved.

6. Unreasonable second lenders
It is important for the bank to meet with the second lender who in this case is the buyer. All property details will be smoother if the two met and discussed terms, including the prices. Sometimes the second lender is too difficult and refuses to meet the first lender. The first lender has no choice but to deny the request for short sale.

7. Tax liens, UCC filings and judgments
The homeowner must pay all liens before they can short sale because any liens under the homes name or the seller’s name will follow them even after foreclosure or short sale. The bank/lender will deny short sale until these liens have been paid.

8. The home is not in good condition
If the home is damaged and requires too many repairs, the mortgage lenders will not approve a short sale. If you are planning to sell it’s important to ensure you repair all damages and leave the home in good shape for the next homeowner.

9. Short sale price is too low
Sometimes the short sale price is too low and too big of a loss that the lender refuses to short sale. If they think they can make more money and avoid the losses by going through the foreclosure process, the lender will often opt for the latter.

10. The bank/lender sold the loan
Sellers fail to understand that at times the bank/lender that gave them the loan could have sold it to another bank/lender. This means that the bank may be servicing the loan and sending payments but not own it. If the bank sold the loan it has no authority over the loan, therefore, it could not approve the short sale.

11. The seller does not qualify
The bank requires a hardship letter from the seller to state why he/she cannot afford to continue paying their debt. If the seller refuses to work out a plan to pay the bank, then the bank will deny the short sale.

Conclusion
A short sale could succeed if the homeowner meets the necessary conditions from the bank. However if not they will be due for foreclosure unless they van manage to make the payments required by the lender. If you intend on short selling, ensure you go through each small detailed that you will require for your request to succeed. Pay your taxes, repair all damages and look for a second buyer that will not be impossible to work worth. Also, ensure the offer made by the second buyer is reasonable enough for the lenders to accept.