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There are many reasons why banks reject short sales. Short sales occur when a bank agrees to accept an amount for the sale of a home that is less than the balance owed. Typically, a highly motivated seller is looking to unload their mortgage obligation and avoid foreclosure.
The three most common reasons a property does not qualify for a short sale are: the offer price is too low, the buyer does not qualify, or the seller does not qualify for the short sale.
The Offer Price is Too Low
Typically, the bank will require an appraisal to establish the value of the home before going forward with any approval. The bank may also request a broker price opinion (BPO) be performed instead of the full appraisal. A BPO measures the home’s value by looking at the comparative sale prices of three recently sold homes in the neighborhood. This process is usually quicker and cheaper for the bank and is common with short sales.
Should the offer price be significantly lower than the BPO, a bank is less inclined to accept the offer for the sale of the home. It is the bank’s discretion whether or not to accept the terms of the offer.
A bank will typically weigh the cost to sell, cost to hold and foreclosure costs when making a decision to sell a home.
The Buyer Does Not Qualify
A bank will require evidence that a borrower qualifies for the home before accepting an offer from them. A borrower must be financially capable of purchasing a property. The items a bank will typically ask for are:
- Credit report
- Evidence of sufficient assets to close transaction
- Preapproval lender from lender with sales price specifically detailed
The Seller Does Not Qualify
If the seller is involved in foreclosure proceedings, the bank may consider holding the property. If the bank has already invested money into the foreclosure, they may want to hold the property and try to sell it themselves in the open market.
A seller should work with their lender to avoid foreclosure proceedings and keep all lines of communication open. A seller should contact their bank’s loss mitigation department and find the representative that can assist them. Once the relationship has been established, communicate regularly about pending offers to keep the bank from beginning the process of foreclosure.
If you are a buyer, keep in mind that a home listed as a short sale is not necessarily approved by the bank. The short sale advertisement does not indicate that a bank has approved a sale.
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